In a best case scenario consumers might save upwards of $63 billion a year if Fannie Mae and Freddie Mac participated in a workable refinancing program for underwater borrowers, according to a new report from Moody’s Investors Service.
However, Moody’s cautions that “Clearly, not all of these savings would be realized, but even a fraction would be a big plus.”
The rating agency’s cost savings calculation is based on 18 million potential GSE borrowers – with an average loan size of $200,000 — reducing their note rate to 4% from 5.75%.
The Obama White House is working on such a plan, but has yet to release it publicly.
Lenders that service GSE mortgages have been using the ‘Home Affordable Refinancing Program’ since early 2009 to refinance underwater mortgagors with poor results: 800,000 refis to date compared to a government stated goal of 4 to 5 million. (HARP allows for refis with LTVs of up to 125%.)
Moody’s and other mortgage market participants say a major stumbling block to refinancing troubled borrowers is the loan level price adjustments (LLPAs) the GSEs slap on such loans.
“Fannie and Freddie are not breaking precedent in charging higher interest rates [LLPAs] to borrowers with less equity and weaker credit,” writes Moody’s analyst Celia Chen and her team. “The two mortgage companies have always done so, because such borrowers are more prone to default. But this standard practice is weakening HARP.”
Chen believes that the best way to jumpstart HARP would be to suspend the LLPAs.
Daily Briefing | Friday, September 30, 2011
HUD May Ban Executives With Outstanding FHA Obligations
The HUD inspector general wants the Federal Housing Administration to ban corporate officers from the FHA program if they have left a company that has not met its obligations to indemnify the government for delinquent loans.
Lower Loan Limits? Not an Issue for FHA Refis
Even though GSE and FHA loan limits will decline to $625,500 at midnight Friday, borrowers with high balance FHA-insured loans can still refinance these products as long as they don’t engage in a cash-out refi.
Fannie’s Acquisitions and Commitments Surge in August
It appears that rock bottom mortgage rates are starting to pay off for Fannie Mae.
Regulators Fought Over B of A, Citi on TARP Repayment Terms
Within weeks of issuing standards for repaying federal bailout funds, bank regulators relaxed those rules in late 2009 as Bank of America, Citigroup, and other large depositories hurriedly pushed to get out from under the government’s thumb, according to a watchdog agency’s new report.
HELOC Lending and Servicing Continues on a Downward Trend
The business of originating and servicing second liens continues to struggle with lenders cutting back on production and allowing their receivables to run off, according to new figures compiled by National Mortgage News and the Quarterly Data Report.
CFPB Applauds Help for Military Borrowers
The Consumer Financial Protection Bureau is applauding the Treasury Department for guidance it issued Thursday that would help members of the military avoid foreclosure.
Carrington Mortgage Hires RealtyTrac Executive
Carrington Mortgage Services, Irvine, Calif., a fast growing retail/wholesale lender, this week hired Rick Sharga of RealtyTrac as executive vice president in charge of branding and marketing.