HARP Having Big Impact on Bank Originations

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8 · 06 · 12

Driven by a wave of business from the expanded Home Affordable Refinance Program, some banks are seeing more refinance demand than they can handle. Participation in the government-supported program is much deeper among larger financial institutions. Underwriting standards on non-traditional mortgages were tightened up, and conditions improved in the commercial mortgage market.

Over the past three months, bank lending standards on prime mortgages were little changed. At the same time, demand for prime mortgages grew.

But standards were somewhat tighter on non-traditional mortgages.

That was according to the July 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board. Participating in the latest survey were 64 domestic banks and 23 U.S. branches and agencies of foreign banks.

Around a third of the respondents that are participating in HARP 2.0 indicated that HARP refinances accounted for a significant share of refinance originations in the past three months. A “large majority” reported that more than 60 percent of HARP applications will be approved and successfully completed.

While a majority of large banks were HARP participants, the participation rate was only a third for the not-so-big institutions.

A large majority of banks indicated that their HARP activity was restricted to mortgages they already serviced or held.

“Many banks also reported that credit overlays that they had imposed on top of the HARP requirements were at least somewhat important factors in limiting their participation,” the report stated. “A significant fraction of respondents reported having been unwilling to offer HARP refinance loans to some customers with high loan-to-value ratios, limited or nonstandard documentation of income or assets, or low FICO scores.”

A small majority of banks said that the volume of refinance applications exceeded capacity.

There has been little change over the past three months in lending standards and demand for home-equity lines of credit.

A modest fraction of domestic banks reported that they had eased lending standards on commercial real estate loans over the past three months, while a sizable fraction continued to indicate that CRE loan demand strengthened.

But lending standards at U.S. branches and agencies of foreign banks were unchanged from the prior report for CRE loans.

Mortgage Expert

Mortgage Daily Staff



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