Refinance, Please

Commercial lenders and the Obama administration seem determined to draw in any borrowers who haven’t yet refinanced their home loan.

California Suburbs
Allan Ferguson
California Suburbs

Even if you have a seemingly satisfactory loan, you may have received an invitation from your bank via an overnight delivery service to drop your mortgage in favor of what may be a better one. That may seem strange, but lenders profit on refinancings, and they don’t want to lose your business.

The Obama administration's intentions may be more obvious: Strapped state governments can receive tax money on new loans. Also, cheaper mortgages could stabilize shaky real estate markets, slowing foreclosures while boosting sales and prices. Consumers may spend the refinancing savings, boosting the overall economy. And, yes, happier homeowners may remember the new loan in the voting booth come November.

JPMorgan Chase,for example, has picked customers to offer a no-fee streamlined deal it declines to describe in detail, but CNBC has learned it involves the bank absorbing all closing costs to keep valued clients.

“We get to originate a new loan and the customer gets a lower rate,” explains spokesman Tom Kelly.

Citigroup has also been sending out refinance offers — via overnight delivery firms, no less — to certain customers.

Chase would not reveal what it makes on loan originations, but did say it processed $145.6 billion in all mortages types in 2011, $38.6 billion of which was in the fourth quarter.

According to Mortgage Bankers Association data independent mortgage banks and subsidiaries made an average profit of $1,263 on each loan they originated in the third quarter of 2011. (The MBA data does not include big banks.)

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Analysts say the banks want to look like they are helping to ease both the credit crunch and housing malaise, having been under pressure from the Obama administration, memebrs of Congress and consumer groups to do more in the wake of the financial crisis.

“Companies are working hard to improve their reputation,” says Paul Leonard, vice president for government affairs of the Housing Policy Council of the Financial Services Roundtable, a powerful lenders trade group.

Though millions of Americans have refinanced once, twice, or even more, during the enormous decline in interest rates that started in late 2007, millions of others have been unable to do so.

The biggest group among the latter is homeowners whose mortgages are under water, meaning they owe more than the property is currently worth. By the end of 2011, some 11 million homeowners were in that predicament — also known as negative equity — according to a recent report by data firm Core Logic. This group also happens to be a large source of home foreclosures.

Given that negative equity cases represent 22 percent of all outstanding home loans, that's a huge untapped market. It's also as much of an opportunity as it is a problem.

The Obama administration is taking another shot at it, having failed to accomplish much with its 2009 mortgage-aid program.

This month, Fannie Mae and Freddie Mac, the agencies that insure many mortgages, are rolling out automated underwriting in the latest version of the program for borrowers with no more than 20 percent equity, the Home Affordable Refinance Program, HARP.

The old rules required the property to be worth at least $75,000 for every $100,000 borrowed. The new version, dubbed “HARP 2.0” by the public, offers something close to a “no-doc” loan — employed borrowers don’t need to produce tax statements. They also don’t need a new appraisal, because this time there’s no ceiling on what lenders call LTV, loan to value.

Sound familiar?

“We’re going to provide refinancing with no documentation against property that hasn’t been appraised. Isn’t this the very way we got into trouble?” asks Keith Gumbinger, vice president at, a mortgage information website.

Commercial lenders say borrowers who are currently making their payments — a HARP 2.0 requirement — are good bets for the future, so they’re eager to sign on. At the same time, underwriting for new loans has gotten tougher and will be subject to stiffer rules as early as this fall.

“It is ironic that we’re looking at new regulations that will sharply curtail the ability to make these kinds of loans going forward,” says Mortgage Bankers Association economist Michael Fratantoni.

Unsurprisingly, HARP 2.0 is getting a big response from the public. Applicants are piling in from Florida, California and in the cities like Phoenix and Las Vegas where people who bought high have watched home values tank.

“Pretty much anyone who obtained a mortgage in Florida from 2002 to 2010” is a candidate, says Rob Nunziata, co-CEO of FBC Mortgage in Orlando, who has been lining up applicants since the program was announced in October.

Higher Rates Coming

Chase had three of its highest volume weeks on record after it began accepting applications in February.

Dan Green, a loan officer with Waterstone Mortgage in Cincinnati and author of, says he’s had inquiries from people reporting LTVs of 200 percent, which means they owe twice the value of their home in the current real estate market.

There’s even a little break on interest, so these loans should be cheaper than ordinary ones. The second version of HARP is also a better deal for lenders, who are no longer responsible for accurate statements about participants' income or LTV. That advantage means your current lender might agree to a new loan even if your credit score is less than the 620 industry standard, says Nunziata.

The streamlining is part of a push affecting all housing agencies, including the Federal Housing Administration, which covers loans geared to first-time and lower-income borrowers. Earlier this month, the FHA announced that it would reduce insurance costs on refinancing, saving borrowers about 1 percent. It also loosened disincentives to lenders, which could have a bigger effect, Fratantoni says.

President Obama went a step further in his State of the Union address, promising Americans a streamlined process even if they hold jumbo or hybrid loans that aren’t insured by the big agencies.

"We expect to see most of the HARP and FHA refinancings in the next couple of months,” Fratantoni says. “When rates go up, that’ll eliminate most non-HARP refinancing loans.”

No wonder, then, that the Mortgage Bankers Association is predicting refinancing activity will fall by some 25 percent in 2012 to $630 billion.

After years of rock-bottom interest rates rates, borrowing costs are expected to move higher. The MBA expects a half percentage-point increase in the 30-year fixed rate, mirroring an identical gain in the benchmark 10-year Treasurynote, whose yield has moved up sharply in recent days to 2.3 percent.

The benefits of refinancing, which may finally be available to millions, have long been irrefutable.

If you took your 6.4 percent, 30-year, fixed-rate mortgage for $300,000 of March 2006 and converted into a 4 percent, 20-year loan, you could pay off the note four years earlier, cut your monthly payment by $205 and save more than $135,000 in interest payments over the life of the loan.

“Any borrower who has an interest rate of 5 percent or more should be running the numbers,” says's Gumbinger. “It’s not going to get any better than this.”

On the other hand, say experts, if you have 10 years or less on your loans or owe $50,000 or less, you’d probably do best to resist temptation and stick with what you have — despite those friendly offers in the mail.