Journalism in the Public Interest

Lack of Competition Stifles Refinance Program for Underwater Homeowners

A new report says borrowers who want to refinance mortgages under the government’s expanded Home Affordable Refinancing Program, or HARP, may not be getting the lowest rates because there’s little incentive for big banks to compete for business.


Some homeowners are getting stuck with relatively high interest rates even after they participate in the government's program to help them refinance their mortgages. The biggest banks are not lowering rates as much as they could be — and homeowners have few options to go elsewhere.

Analysts say that the big banks are set to make major profits off of the Home Affordable Refinancing Program, also known as HARP, which allows homeowners with loans backed by government-owned Fannie Mae and Freddie Mac to refinance if they owe more than their home is worth.

The program, launched in 2009, is designed to let struggling borrowers take advantage of lower market interest rates. So far, about 1.1 million people have refinanced under the program, which was expanded last fall to make it more attractive for banks and to let more homeowners participate.

Since then, the government says there has been "tremendous borrower interest" and estimates that another 1 million could qualify over the next two years. But while the expansion may let more people refinance, it may not be at the lowest rate possible because the incentives don't favor competition, according to a new report by an investment group Amherst Securities.

The report says the big banks are able to make a considerable profit from refinancing their existing customers under HARP, and that there is little incentive for them to go outside their own customer base and seek out more HARP business on mortgages that originated with other lenders.

Few other companies have stepped in to offer HARP refinancing for people who'd like to leave their current lender, partly because it is still risky for them to take on the underwater loans, even with the HARP incentives.

The result is that homeowners in many cases are stuck with what they've got, Amherst says, and the big banks can charge them more.

Guy Cecala, who runs the publication Inside Mortgage Finance, said that there is "virtually no competition" for the big banks. "It's normal business practice for mortgage lenders — when you can, you charge a higher interest rate."

Here's how this situation came about.

For Banks, Built-In Incentives

Last fall's expansion of HARP tries to make it more appealing to mortgage lenders, since the initial response to the program fell short of expectations.

New rules removed the cap on how much a borrower could be underwater and still qualify. It also eased appraisal requirements and — critically for banks — removed some of the liability for bad loans that banks had when selling their mortgages to Fannie and Freddie.

The Amherst report points out that the biggest lenders — JP Morgan Chase, Bank of America, and Wells Fargo — are responsible for more than 60 percent of HARP refinancing applications. The report also says the cost of refinancing an existing customer under HARP is minimal.

The big banks already have plenty of demand in-house. As such, it's easier and more profitable to stick with the loans they already service than to compete for new business, which could result in lower rates for homeowners.

The report says that the extra steps required under HARP to refinance a loan from another lender make the process onerous and risky. A spokeswoman for the Federal Housing Finance Agency (FHFA), which is in charge of HARP, disputed the notion that it's difficult to sign up new borrowers. "The additional information collected is minimal and appropriate, given that these lenders have no experience with or information on these (new) borrowers," she said.

JP Morgan Chase, Wells Fargo and Bank of America all confirmed to ProPublica that they have seen an increase in the volume of applications for HARP refinancing since the new rules came into effect. Last month, American Banker reported that banks were scrambling to bolster their mortgage-servicing units to deal with the influx of applications from HARP.

The program is voluntary for banks, and they can place their own restrictions over and above those set by the government.

JP Morgan Chase and Bank of America say they are only doing HARP refinancing for existing customers — not seeking out new business on loans originated by other lenders. Wells Fargo is accepting refinance applications from borrowers at other servicers, but it is putting a cap on the amount that the loan can be underwater.

Update (4/6): A spokesman for Bank of America said in an email sent after this story published that the bank’s goal is "to provide fair prices for HARP."

In January, according to the FHFA, roughly 50,000 people refinanced under the new HARP rules, and HARP's share of all refinancing increased. Some smaller lenders, especially in states with the worst housing markets, are hoping to jump in and offer lower rates to people looking to leave their current bank, even with the greater risk.

Just yesterday, I went through the HARP 2.0 process with BofA. I was perfectly qualified for this however, the best they could do was offer a refi at 5.125%. The going rate is less than 4%. It’s ridiculous.

When the banks don’t lower the rates of their struggling homeowners to competitive interest rates, this does little to help the family refinancing.

I qualified for refinancing through Wells Fargo but they offered a rate of 5.25 on an investment property plus $4000 in closing costs. I was told that the rate was higher because of risk based pricing….an underwater mortgage on a condo in FL.  How can the risk be higher? - the loan already exists and it’s currently underwater.  Since I have no other refinancing options, I feel that they are taking advantage of a captured audience.  That’s an offer I can refuse!

paul reinhertz

April 5, 2012, 4:47 p.m.

Yes, I applied for HARP II from my mortgage holder (PNC) and was processed rather easily, however, I withdrew my application when they would not give a rate better than 4.7%.  The officer stated to me, “This is not the vanilla of rates under this program”.  So I am looking for other servicers but may have to return and take what I can get.  We are so underwater here that we have to swim to get in the back door of our house

This is exactly what happened to us just a couple of weeks ago - interest rate offer significantly higher than what our credit rating should have qualified us for, and ADDITIONAL lender fees because LTV was greater than 105% (116% estimated actual based on  Appraisal fee was nearly twice what I paid in previous refi in 2009 (appraisal can be waived under HARP 2 but not known upfront).

We said, ‘no thanks’ (it really was an offer we could refuse).  The banks’ already played havoc with our finances 3 years ago in the crisis.  We weren’t going to invite them back for another go.  We figured they didn’t need our help to get even more insane profits to report to Wall Street (while seeking additional government hand-outs and concessions).

I am in the process of a HARP 2.0 refinance in California. I’m locked in at 4.25 as of today and the refinance fees are fairly low. My appraisal was waived which saved me over $400.  I did not go with my current lender. I shopped around.  I’m not severely underwater. My loan to value is probably about 105%.  The program works if you can find the right lender.

April 5, 2012, 11:10 p.m.

I actually just got the harp2,  I did an online app that didn’t request a SS#, the entire process was pretty quick, the service shops for the best program, and I finally closed on Tuesday.. my rate was a 4.125% but I am pleased b/c my original rate was a 5.625% on a $400k loan I am saving $246 per month.

Closing tomorrow on a HARP refi with Citi. Rate is 4.65, which is not at the 4% I would have liked, but a lot better than the 6.5 I currently have. Will save $400 a month- wish I’d known about the appraisal fee being waived…

“Lack of Competition Stifles Refinance Program”...that isn’t all that is being stifled; mega-multinationals and monopolies are stifling the free market and democracy itself. 

If you ask me, we should quit pretending and ask Queen Elizabeth to start passing out earldoms and baronies to among Corporate America’s owner/operators.

And then have start having feudal wars to so who shall be King.

Huh…I type as bad when I am angrily disgusted as when I am merely infuriated…make that:

“And then start having feudal wars to see who shall be King.”

MY comments are, WE need to,
Nationalize insurance companies and pay for National Single Payer plan.
Support Our Troops! PTSD. ANYTHING THEY NEED, AS LONG AS THEY NEED! Stop the Wars! (Iran, Iran, Iraq?), Afghanistan!  And Mexico! Legalize Medical M. and industrial Hemp! TAX IT! Pay the debt down by TAXING THE 1% ers! And JAIL FOR BANKSTERS!  Green Energy!


others, It’s True: The Banks Got Bailed Out, and We Got Sold Out

We all know the story to one degree or another. The financial sector set up a system that encouraged mortgage initiators to prefer subprime loans to prime loans. They stopped asking for any documentation proving an ability to pay back home loans. They sought out unsavvy borrowers and steered them to riskier loans because they got bigger bonuses that way. The garbage loans were packaged up into derivatives and given deceptively high credit ratings. Then those derivatives were sold to unwitting customers who lost tons of money when they went bad. Meanwhile, the big banks bet against their own financial products even as they marketed them as safe investments. When the house of cards fell, the government had no choice but to save the banks because our economy can’t function without a banking system. Then the bankers took the money and paid themselves big bonuses while millions lost their jobs, their homes, and their retirement security.  Read more
By BooMan | Booman Tribune
Posted on Thursday, December 1, 2011 @ 05:58 AM


The banks caused the drop in prices and they are getting bailed out by us and we are getting squat.  google “100yearhomevalues”.LOOK AT THAT GRAPH !! those crooks did this to us…  No one should have to qualify for a modification.  They should simply drop the principal balance to the fair market value today and stabilize the housing market and prices.  Then adjust the interest rate for at least 5 years to make the home affordable.  That will give people a chance to recover and if they really can’t make the new payments they can sell without having to beg at the altar of the banks for a short sale.  The principal balance will already be at the fair market value….. MARK TO MARKET!!
if that happened the housing market could stabilize….

I recently (yesterday) worked out a refi over the phone with Chase. They are the original loan servicer. It took me about 30 minutes over the phone, I received a 4.125 % rate for a 30 yr. fixed.
Total closing costs was about 4000 bucks. No paperwork, appraisals, verifications etc. other than my employment and credit. BTW my credit score is 752 so that probably helped.
I think I did pretty well. If someone thinks different, I would welcome any comments or concerns.
Thank you.

How about people that have moved from the underwater property to seek employment elsewhere? We live in another state and rent out the underwater home at a loss each month. We are about 30,000 underwater and are current on our mortgage. We do the right thing and there is no help anywhere. Government efforts are half measures at best.

We have great credit, 120% LTV based on zillow, and current on payments.  Only able to get Wells Fargo and QuickenLoans to give quotes, and cannot seem to beat 4.5% with no points.  I am holding out for 4.0%, but that seems very doubtful.  Hoping more lenders, including credit unions, will enter into the HARP marketplace soon so that rates can come down.

Well, I was concerned about rates going up and possibly losing out on a pretty good rate at 4.125. I’ve got a ARM loan so I have been trying to refinance into a fixed for the last three years. I was so happy when this program came online. Every other time I tried to get a refinanace they told me NO! Even with fantastic credit. The LTV was killing me.

First the disclaimer, I’m a mortgage broker. But, I’m not solicitating for business here.  Pricing today for a lender that is aggressively refinancing other banks loans is 4.125% with no points or junk fees.  This loan assumes 660 credit score, LTV of 125% or less, single family primary residence, 60 day lock, and $200,000 loan amount.

My suggestion to borrowers is to contact a reputable local mortgage broker to see what they can do.  Most have several lenders they work with.

Catherine Tripp

April 9, 2012, 10:38 a.m.

There is absolutely no reason for paying any banks to refinance any mortgages.  Fannie and Freddie should have been fully privatized decades ago, as they were keeping interest rates at a false low.  Because they do not wish to disclose to shareholders that their assets are worth billions less than reported, they refuse to forgive principal, and these modifications merely add ALL the accrued interest and penalties to the original amount.  All benefitting the bank, no benefit to homeowners.  They MUST mark to market, forgive the principal, and tell the truth to their investors.  A. P. Giannini would.

I spent years in Mortgage Brokering/Banking attempting to get Companies to adapt a stance of “Relationship Marketing”, all the while watching the major banks pushing A.R.M.s and even worse sub-standard products, watching “Direct Endorsement FHA/VA Lenders close loans at 1-3% above par.

One even told me, point blank, “We don’t DO Par Rates in this house…if that’s what you want to do, you better find somewhere else to do it.”

The last place I applied to originate loans, saw the interview “going south” on the issue, again of fees, par rates, and equity. The Office Manager said, “You mean you’d walk out of a house and ‘leave money on the table?” My response was, “If you and everyone like you doesn’t start leaving some money on the table, you’ll wake up some morning and discover there isn’t a table left! You’re being set up by the big banks. When all this starts blowing up, they’ll be the only ones left and you’ll be gone.”

That was about 10 years ago…sadly, I was right. The Banks remaining play by the original “Golden Rule”. “He who has the gold-makes the rules…”

@Ms. Tripp-Your article is very fair. As one of the people who put over 20% dwn and paid more towards principle every month while able to work (workplace accident eventual shoulder replacement), I fell for HAMP mod after 2 years of trying only to have BoA not even remotely follow guidelines. This was an “A” loan and I depleted my savings and part of retirement to stay current. Now I have taken off the gloves and hired an attorney as it is evident BoA will not do the right thing. My only regret is I did not do this over 2 years ago.

@Catherine Tripp, who emoted “Fannie and Freddie should have been fully privatized decades ago, as they were keeping interest rates at a false low.”

Think that rather than “interest rates”, I would have said that Fannie and Freddie kept bank profits much lower than they could have been…seeing as how the banks have been able to “borrow” money from the Fed for practically nothing for quite some time now.  Fannie and Freddie worked fine, until a bunch of Republicans got into a position where they could start the mortgage-backed securities pyramid scam:

Would it have been in the best interests of the American people, the economy, or the nation to eliminate the competition of Fannie and Freddie and so permit the collusive monopoly (at least in all things having to do with interest charged) banks to charge the same extortionate interest rates they charge on credit cards for home loans? 

Don’t think so.  Might have prevented the Republicans from devastating the economy with their corruption, but many people who own homes now wouldn’t.

I will also throw in the disclaimer - I am a Realtor and have a working knowledge of this issue, as well as a personal knowledge. I’m not looking to solicit business…jus blow off steam!

It’s so frustrating to me to see home owner’s who have worked so hard to stay current on their home loans and apply for a refinance under this new save all program. The homeowner may be willing to continue making payments for their FULL mortgage balance - simply looking for a fair break on the interest rate. And the banks prefer to give them a bum deal so that they will end up listing their property for Short Sale - or even walking away from it all together!!

then here comes some other guy off the street with NO previous relationship with the bank or the property. He is now able to purchase that EXACT SAME house for often 1/3 the price that the bank could’ve received from the original home owner if they had only offered fair terms on the modification or Refinance?

It makes no sense, no matter how you spin it!

Unfortunately, we are not moving fast enough in the direction of a stable market. These tactics by the bank are just delaying the recovery. Until these properties can be successfully modified - or turned over - we will not see any significant, lasting increase in home values. Bummer.

Thanks for letting me vent!!!

Responsible homeowner

April 10, 2012, 11:35 p.m.

My husband and I tried the HARP since December of last year.  Both loans fell through.
Quicken Loan says Freddie Mac gives a lower LTV therefore kicking us out of the refi bid.
Home savings went out of business.
Does anyone know of any program that will take care of the RESPONSIBLE home owner?

Responsible Homeowner - have you tried again recently? Your only real options are to:
1) keep paying on your current plan and just deal with it
2) reapply under Harp2 and see if your current lender will help you at all(refinance),
3) If you are behind on your loan you can try for a modification plan,
or let the property go - either by:
4) short sale or
5) Foreclosure
6) Deed in Lieu.

If you had already fallen behind and are now able to make your payments as per your previous agreement, you may now also be able to qualify for a repayment plan or forebearance. But, since you referrence “responsible homeowner” I’m assuming that you are still current on your loan?

Not many good options out there… But there are many good resources. Start at HUD.GOV for more information. You may benefit from a conversation with a credit or housing counselor as well.

Hope this helps!

Going to your current lender is not necessarily your best option.  In fact, this article addresses the fact that your “current lender” does not give you a very good deal.  Call a local mortgage BROKER.  They typically work with several different lenders and offer the most competitive rates available. There are a number of lenders that will not restrict eligibility for the HARP 2.0 program.

Add me to the list of pissed off homeowners.  Great credit, never missed a payment, did everything right before (20% down when we bought, etc) but the house is in AZ so we are now at ~174% LTV.  Some HARP2 lenders won’t even talk to us, our current lender basically said that the LTV (something over which I have NO CONTROL) is driving the rate.  We’re getting 4.5% with 1/2 point from Wells Fargo, which is better than what we have now, but not close to market (3.89% today). 

Freddie Mac is also limiting what you can roll into the new mortgage, so unless I want to put out nearly 5k at closing, I can’t approach the 4% going rate.  I’ve been told that few lenders want to deal with them and that they are making it harder on the banks than fannie mae. 

Frankly I still am thinking about @Amber Trejo’s other suggestions - short sale, deed in lieu or foreclosure/strategic default.  Why not?  I can’t seem to catch a break on this thing, no matter what I do. 

That’s the thing that is killing me most here - the people who did things right are the ones getting hurt the worst.  And the banks are still making out like freaking bandits.

Responsible homeowner

April 11, 2012, 2:32 p.m.

Thank you for your comments.  I will try the HARP 2.0 and hope this will work.
Thank you again.

I work for a credit union who sold my loan to Fannie,  and in 2006 the mortgage servicer has flagged my loan so I am only able to do the harp refi with them.  I have been getting the run around from this servicer since Oct 2011.  They told me to wait until December for harp 2.0, then they telle they won’t be ready until March.  I wanted to redo at 15 year to pay down my loan faster at a better rate, and they tell me that harp won’t have that until June.  If I do a 30 year I have to pay points for who knows what rate.  I am paying 6.37 now.  I put 20 % down originally and my house is now valued at 100 k less than what I purchased for.  I don’t want to put Any money into my home, and just so frustrated and ready to walk away like many of my neighbors

Thanks Jim for pointing out what I said in error - of course you can go to any local Loan Broker to try to qualify for a refinance under Harp 2.0! I havent’ heard many stories of people actually having success with that, but I would love to know if anyone can recommend a good loan officer in the Greater Las Vegas Area to refer my clients to???

If you have had good success or know of someone who has, please tell me! you can email me at .(JavaScript must be enabled to view this email address)

Rebecca - whatever you do, don’t just walk away! That is a decision you will regret for many years to come.

@Amber-I’m assuming you are either in real estate or a bank shill. Coming from someone who has gone down the road you have suggested just doesn’t cut it. I’ve even been to BoA outreach program and took all documents they required only to have them disregard basic HAMP guidelines (not including HOA fees). One day they’re documented, next day they’re not. Oh, but they will be figured in your perm mod. Just strung me along enough to put money in escrow account. False reporting to credit bureaus, establishing false address and calling me at 6 a.m. in the morning after repeatedly asking them to call at an appropriate time (I was recovering from surgery and they knew it). I’ve tried HUD counselors (Lady told me herself that outreach program was worthless), HOPE (Hotline,escalations, MHA) all my elected officials, Fannie, FHFA, Treasury, House banking committee, you name it I’ve tried. Never once asking for principle forgiveness. Very sorry this has eaten into your pocket also. Probably reason why you’re giving advice that you are. Been there and done that…thanks anyway! May God bless all of us.

This article is part of an ongoing investigation:
Foreclosure Crisis

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.

More »

Get Updates

Our Hottest Stories