Banks participating in the Obama administration’s expanded mortgage refinancing program are able--and willing--to charge higher mortgage rates than normal, according to an analysis by Amherst Securities.
The investment firm points out that under the revised Home Affordable Refinance Program--often called as HARP 2.0--banks receive special benefits for refinancing their own loans, meaning that borrowers are likely to stay with the same lender if they want to refinance. As a result, banks have “tremendous pricing power” that they’re taking advantage of “by charging higher rates to HARP borrowers and...earning massive profits on originations,” Amherst concludes in the new research note.
That said, one of the biggest obstacles to the original HARP program was that mortgage providers were reluctant to play along, contributing to low participation rates. So the more favorable terms under HARP 2.0 could encourage them to jump in and expand refinancing to more homeowners, helping to avert foreclosures. So there are still benefits of broader refinancing--to the housing market as a whole, as well as individual homeowners.
Amherst suggests, however, that there’s a simple way for the administration to expand refinancing at more affordable rates: “Increase HARP refi competition by providing the same benefits on a different servicer refi.”