When the godfather of mortgage securitisation speaks, you listen.
This week Lewis Ranieri devoted a not insignificant amount of time from his Milken conference panelist discussion to Harp 2.0 — the US government’s refinancing programme for underwater mortgages.
The original iteration of Harp (which stands for Home Affordable Refinance Program) was set up by President Obama in 2009. In essence, the programme allowed mortgages that were guaranteed by Fannie Mae or Freddie Mac to be refinanced on easier terms than previously available.
However, banks were reluctant to engage in the programme since it still exposed them to so-called “reps and warranties” risk. That meant, as DSNews noted back in October, that any new lender could “be held responsible by the investor – in this case, Fannie Mae and Freddie Mac – and be forced to buy back the loan as a result of an earlier defect overlooked by the original lender.”
Cue Harp 2.0, which waived certain reps and warranties in an effort to get more bank participation.
The FT has already noted how successful it’s been, at least, in terms of boosting banks’ earnings
But back to Ranieri, who had this to say about the programme:
Harp 2 is in fact really building up steam… The reason it doesn’t look like it’s worked as well as I think it will is the agencies, who you have to realise are in a state of disrepair, their technology is antiquated… and the turnover is extreme … So as an example Fannie Mae did not come online for some of the Harp 2 changes ’till the end of March. So some of the biggest guys like Wells could not implement until April. So you’re not seeing five months of production, you’re really seeing much less than that.
Now there’s a slightly absurd corollary to this. Laurie Goodman at Amherst Securities has already written about the extent to which Harp 2.0 is providing the largest boost to the biggest banks.
Bloomberg reported this week that Wells, already the biggest US residential lender, widened its lead over other banks by originating a third of all mortgages in the first-quarter. Wells Fargo CFO Timothy Sloan has also said that refinancings have helped boost the bank’s market share.
It’s a funny old world when a government programme appears to help the big get bigger.
A chart, to that effect, courtesy of Goldman Sachs:
Wells Fargo’s Market Share of U.S. Mortgages Tops 33% – Bloomberg
Fixer-Upper: Repairing the U.S. Housing Market – Milken Insitute
Big banks win in HARP 2.0 as changes lock borrowers into high-cost refis – HousingWire