New HARP 2.0 Guidelines Improve Bank Margins

by Chicago Agent

Margins have hopped upwards in the first quarter following revisions to HARP last fall.

New analysis of HARP 2.0 is suggesting bold improvements for bank margins and other lending measurements in the second quarter of 2011.

Conducted by the firm Keefe, Bruyete & Woods (KBW) and covered by HousingWire, the analysis looked at the financial performance of Wells Fargo, JPMorgan Chase, PNC, Bank of America and USB, and the results were uniformly positive.

In gains-on-margin from 2011’s first quarter to 2012’s, Wells Fargo’s percentage rose from 1.67 percent to 2.36 percent; for JPMorgan Chase, it rose 2.48 percent to 4.22 percent; at PNC, it rose 2.63 percent to 3.21 percent; at USB, increases were from 0.87 percent to 2.30 percent; and, most dramatically, Bank of America’s margins more than tripled from 1.18 percent to 6.10 percent.

“We view these results positively for the rest of the industry,” the analysts said.

The increases can be attributed to a number of things, HousingWire reported, such as the increase in HARP volume following last fall’s policy revisions, an increased volume in mortgage applications and higher interest rate locks. Interestingly, the article did not mention the recent HARP automations, which were anticipated to greatly increase volume.

Nowhere was HARP’s influence more apparent than in Bank of America’s numbers, the analysts said.

“The sharp increase for BofA primarily reflects the very high percentage of HARP volume as a percentage of its refinance activity,” they said in HousingWire’s piece.

HousingWire also noted the outstanding repurchase claims that many lenders still have on their books, with the most notable case being Bank of America, which still have more than $16 billion in outstanding claims. Half of those claims, though, are from Fannie Mae and Freddie Mac, and lest we forget, Bank of America is still embroiled in a feud with Fannie following a much-publicized split from the GSE.

One interesting detail going forward will be how the first quarter’s mortgage volume compares with 2011’s fourth quarter. The KBW analysts are anticipating a small increase from Q4 to 2012’s Q1, but the majority of financial analysts are expecting a small decrease.

The Mortgage Bankers Association, for instance, is projecting a decrease from $361 billion to $318 billion, and Fannie expects its volume to fall by $36 billion to $375 billion; that latter number, though, was a sizable increase from the GSE’s original projection of $327 billion.

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