HARP 2.0 Holdups

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Loan officers at U.S. financial institutions were surveyed about obstacles to originating home loans. While some banks are participating in the government’s refinance program for negative-equity borrowers, many see too many impediments to utilize the program.

When asked in a survey about what factors are impeding their ability to originate residential loans, bank loan officers cited the periods when new business exceeded their production capacity.

Delayed real estate appraisals are also causing loan applications to get hung up, as is slow or inaccurate underwriting.

Another issue obstructing originations is the ability to hire enough processing staff.

The April 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices was prepared using responses from loan officers at 58 domestic banks and 23 U.S. branches of foreign banks.

Around one-third of banks are actively soliciting the expanded Home Affordable Refinance Program and satisfying existing demand. But nearly half noted very little participation in HARP 2.0.

HARP participation might be stronger if it weren’t for the risk of repurchase. Other obstacles in the way of the program include difficulty in transferring private mortgage insurance coverage, identifying junior lienholders and obtaining re-subordinations on second liens.

Standards for prime mortgages have been little changed over the past three months at U.S. financial institutions, though demand has picked up.

But on nontraditional loans, a modest net fraction of respondents noted that standards had tightened. However, was the case for prime mortgages, “moderate net fractions” of loan officers reported stronger demand — though “a few large banks” reported weakening demand.

“Most banks continued to report little change in their lending standards for home equity lines of credit, and demand for such loans was also about unchanged,” the Fed report stated.

Respondents were asked to compare their current willingness to originate GSE-eligible mortgages that have varying credit scores and downpayments with their willingness to do so in 2006.

While a “large majority” would be less likely to make a loan now to a borrower with a 620 FICO score and a 10 percent downpayment, the share rose with higher downpayments and credit scores.

“Most banks cited borrowers having higher costs for, or greater difficulty in obtaining, mortgage insurance coverage as an important factor contributing to the reduced likelihood of originating GSE-eligible mortgage loans,” the report stated. “About as many respondents noted the higher risk of putbacks of delinquent mortgages by the GSEs as an important factor, and that factor was listed as the most important one by the largest number of banks.”

Increased exposure to residential real estate assets was planned at “a moderate net fraction of banks.” This includes home loans and mortgage-backed securities. But several large banks expect to cut their holdings.

Looser standards on commercial real estate loans were reported by “a modest net fraction” of domestic bankers.

In addition, demand for CRE loans had picked up at a similar share.

Mortgage Expert

Mortgage Daily Staff



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