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COVER STORY while at the same time lifting financial sector employment as well as bank and lender profits. Navigating the HARP Strings H ARP 2.0 comes with several strings attached: • The maximum LTV home- owners looking to refinance into an adjustable-rate mort- gage is set at 105 percent. the economy, though, raises questions about the impact of the strong refi numbers at the beginning of the year and their effect on the mortgage industry and the housing sector: whether the activity is sustainable and whether it is good for lenders. The uneven performance of A Breed Apart P about his concerns regarding the increased volume of activity. atrick Glaros, a Dallas mortgage planner, is not shy regulations, low rates, and bank mergers have created a new breed of low-service, disempowered loan originators," according to Glaros. "This new "The new government 24 | THE M REPORT • Homeowners looking to refinance into a fixed-rate mortgage have no maximum loan-to-value (LTV) ratio. • The new mortgage balance must not exceed 125 percent of the home's current value. • Payments on the new loan must be more affordable or more stable than on the existing loan. • The current mortgage must be up to date with no late pay- ments in the past 12 months. • The homeowner must be able to afford the new lower payment. • A HARP refinance only ap- plies to Fannie Mae or Freddie Mac mortgages. • The borrower must live in the home being refinanced. breed coming is a result of the enormous loan volume, driven by incentives for 'servicer to servicer' HARP or Refi Plus transactions. With the loan servicing of nearly all Fannie/Freddie loans being done by major banks, these new programs are designed to allow homeowners with loans owned by Fannie Mae/Freddie Mac incentives for 'servicer to servicer' loans that will continue to drive business in their doors. brokers is up slightly from 2011, it too is down dramatically—61 percent—from the pre-recession peak, and the number of apprais- ers fell almost 6 percent in the last year, down almost 25 percent from its pre-recession peak. That said, Amy Tierce, region- While the number of loan al VP of Fairway Independent Mortgage in Needham, Massachusetts, sees some posi- tives in the flurry of activity. "The new government regulations, low rates, and bank mergers have created a new breed of low-service, disempowered loan originators." — Patrick Glaros, Dallas mortgage planner Politics aside, no matter whose administration created the program, business is being driven to big banks through these programs." Perhaps to illustrate Glaros' point, the increased demand and application activity has not been met by an increase in employment in the residential mortgage industry. According to data from the Bureau of Labor Statistics, the number of "real estate credit" jobs—underwriters—fell almost 3 percent from May 2011 to April 2012. Underwriting jobs are down almost 42 percent from their pre-recession peak. means that mortgage lenders are extremely busy today, and com- panies, who may have been on shaky financial ground, are do- ing business and earning profits," she said. "The challenge for lend- ers is to balance the increasing purchase activity in the market and the needs of buyers against the ease of refinance business. This is a challenge for many companies who cannot meet the processing timelines required with purchase transactions." The surge in refi activity, she added, is not without consequences. "This [stronger refi activity] hurts the purchase market," "The strong refinance market she cautioned, "because many lenders simply do not set up appropriate expectations in terms of their processing timelines. They tell the real estate commu- nity, buyers, sellers, and agents 'no problem' and then do not deliver as scheduled. This creates mistrust in the market." Proceeding with Caution F they're going to pump billions of dollars into the bond markets may seem like a good thing for interest rates, history has shown the immediate impact has been for interest rates to go up at a rapid rate," he warned in his weekly blog post immediately after the latest Federal Reserve action aimed at lowering rates. "This happens for two reasons: 1) the stock markets see this as an opportunity to make some short-term gains—let's sell our low-yielding bonds and make some money in stocks until the euphoria wears off—and 2) infla- tion: the measure of purchasing power of goods/services. If the Fed turns on the printing presses once again to come up with the billions needed for the 'stimulus' or 'easing,' what does that do to the dollars that are already out there? They become less valuable. More supply/printing [leads to] lower value of the dollars that are out there." The latest downward trend in "While the Fed deciding pricing and yet another boom of refinances is keeping many lend- ers afloat, says Jack Pritchard, co-developer of The Mortgage Professor website. "The big four (JPMorgan Chase, Wells Fargo, Bank of America, and Citibank) are overwhelmed, understaffed (on purpose), and not interested in increasing loan production/ volume," he said. "The next layer, the correspondents, is surviving and some thriving on or his part, Glaros remains wary.