Bank of America Corp., the largest mortgage servicer, said lenders will meet with the overseer of Fannie Mae and Freddie Mac to discuss last month’s revamp of the federal Home Affordable Refinance Program, which originators view as containing unexpected details that impair the effort.
The Federal Housing Finance Agency has “called us all back next week to talk,” Vijay Lala, who manages HARP for Bank of America as a mortgage-products executive, said yesterday. “There were some things in there that we didn’t think were going to happen, that are making it more operationally difficult to implement. They threw some curveballs at us.”
President Barack Obama urged changes to the program for borrowers with little or no home equity to spur more refinancing as homeowners failed to take advantage of interest rates at about record lows of less than 4 percent. HARP has helped less than a quarter of the 4 million to 5 million borrowers projected when Obama announced the program in February 2009, and delays may restrict the push to bolster housing and consumer spending.
The HARP adjustments are removing restrictions on how much borrowers can owe relative to home values, reducing risks to lenders from faulty underwriting and cutting fees.
Bank of America’s reaction to the revisions may help determine how successful the expansion becomes. The Charlotte, North Carolina-based firm services 20 percent to 25 percent of loans potentially in need of HARP based on their origination dates and rates, Morgan Stanley estimates show.
Details troubling to lenders may limit rather than “derail” HARP, which is “overall a strong program,” Lala said in a telephone interview. They include required documentation of borrowers’ “passive” income, such as child support, alimony or retirement pay, Lala said. For employed borrowers, HARP guidelines call for lenders to verify just with telephone calls that they have jobs. He didn’t name the other lenders that will be part of the discussions.
The FHFA, lenders and others worked “very collaboratively to remove the hurdles that we considered to be the most prohibitive to borrower participation,” said Meg Burns, a senior associate director at the agency. “We still believe that what we’ve done together will help more borrowers to access this program.”
The mortgage-bond market is signaling the effects of the revamp will be limited. Fannie Mae securities backed by 30-year loans with rates of about 6.5 percent have risen about one cent on the dollar since Oct. 24 to more than 110 cents, according to data compiled by Bloomberg. Refinancing repays investors faster at 100 cents.
‘Take Some Time’
Under the revamp, Bank of America has already incorporated into its lending the reduced fees at Fannie Mae and Freddie Mac for riskier loans, before competitors, Lala said. It expects to be ready within 30 to 45 days with processes for transferring mortgage-insurance policies under the program and for loans exceeding 125 percent of homes’ values.
At Wells Fargo & Co., it will “take some time to make some necessary system changes,” said Vickee Adams, a spokeswoman for the San Francisco-based bank. She declined to offer further details or discuss Bank of America’s comments on lenders wanting tweaks to HARP.
Wells Fargo, Bank of America and JPMorgan Chase & Co. are the largest U.S. mortgage lenders.
Tom Kelly, a spokesman for New York-based JPMorgan, declined to comment.
When the FHFA outlined the planned revisions on Oct. 24, it said certain firms might start taking applications on Dec. 1 under rules reflecting some of them. Government-supported Fannie Mae and Freddie Mac detailed the changes, some of which don’t take effect until March or later, to lenders on Nov. 15.
Freddie Mac changed its streamlined refinancing guidelines for mortgages with loan-to-value ratios of less than 80 percent, blocking consumers from qualifying if they owe more than their properties’ values because of home equity debt and requiring more documentation for other homeowners.
That will make it more complex for servicers to assess Freddie Mac loans for HARP, and “now you’ve got different guidelines from Fannie and Freddie when the intent was to align the guidelines,” Lala said.
Freddie Mac’s program for mortgages with loan-to-value ratios below 80 percent isn’t part of HARP, which itself is offering “unprecedented access to refinancing,” said Brad German, a spokesman for the Mclean, Virginia-based company.
When lenders meet with the FHFA, “one of the big topics for discussion” will be the exclusion of situations involving a “scheme or pattern of fraud” from relief on forced repurchases of faulty mortgages, Lala said. “It’s vague and that’s why we want some specifics in the contract language.”
A document posted on Fannie Mae’s website says fraud “is a misstatement, misrepresentation or omission that cannot be corrected and that was relied upon by Fannie Mae to purchase the mortgage being refinanced.” A scheme or pattern involves “two or more mortgages and two or more perpetrators acting in common effort.”
The document also says lenders should consider an “unusually high” debt-to-income ratio as “an opportunity to evaluate the individual borrower’s circumstances to determine whether a refinance (as opposed to a modification) is the appropriate option” while saying any lowering of payments is sufficient to qualify borrowers.
Andrew Wilson, a spokesman for Washington-based Fannie Mae, declined to comment.
Lala disputed reports by mortgage-bond analysts from Morgan Stanley, Barclays Capital and Nomura Securities that Bank of America trailed rivals Wells Fargo and JPMorgan in using HARP in its earlier form. The lender is adding resources to departments handling HARP loans in response to its expansion, he said, saying it hasn’t yet determined the amount of workers needed.
High-rate loans serviced by the bank prepaid more slowly than Wells Fargo-overseen loans since at least August 2010, according to a Nov. 19 Nomura report. Morgan Stanley said this week that prepayment speeds at Bank of America more recently trailed behind JPMorgan.
While the bank did curb HARP lending earlier this year as a surge in traditional refinancing strained its resources, it’s proud of its total record, Lala said. “We did a lot of these way early on” in 2009 while other lenders were “late to the game,” he said. “You have a finite group of borrowers.”
The prepayment data also covers high-rate loans to borrowers with 20 percent home equity, so isn’t only indicative of HARP use, he added. Bank of America has originated about 200,000 HARP loans based on FHFA definitions, Lala said, or more than 21 percent of the reported industry total of 928,600 through September. Wells Fargo has made about 290,000, Adams said. Kelly declined to provide a number for JPMorgan.