A government program meant to help struggling homeowners will at minimum help some struggling banks.
Big banks could rake in as much as $12 billion in revenue by refinancing the mortgages of homeowners that owe more on their homes than they are worth, according to an analysis by Nomura, a Japanese bank, cited by the Wall Street Journal.
The government last year announced an expanded version of HARP, known as HARP 2.0, which was meant to allow underwater borrowers that were current on their payments to refinance their mortgages at market rates. Instead, the program has allowed big banks to charge steep fees and above-market interest rates, all while refinancing mortgages they already handle, according to several news outlets.
Meanwhile, the homeowners getting their mortgages refinanced through the government program, known as the Home Affordable Refinance Program, or HARP, are likely to save as little as $2.5 billion, the WSJ calculates.
Today, roughly one in five homeowners are underwater on their mortgages, according to CoreLogic. Underwater homeowners are more likely to default on their mortgages than homeowners that are not underwater, multiple studies have found.
In March, American Banker reported that big banks have been profiting from HARP 2.0 by charging higher interest rates to existing borrowers. Amherst Securities came to a similar conclusion that month, saying banks were "charging higher rates to HARP borrowers and... earning massive profits on originations."
HARP 2.0 benefited banks from the outset, allowing them to shift the liability from big banks to Fannie Mae and Freddie Mac -- two government-sponsored enterprises -- for underwater mortgages refinanced through HARP 2.0 that go into default after big banks offload their mortgages onto Fannie and Freddie, The Huffington Post's Zach Carter reported last October. Fannie and Freddie previously were able to force the big banks that sent them ineligible loans refinanced through HARP that fall into default to pay for the losses.
All that said, HARP 2.0 has helped some underwater homeowners emerge from the shadow of overwhelming debt, according to the San Francisco Chronicle. John Oliver of Vallejo, California, will save $171,000 because of his new JPMorgan Chase loan, he told the San Francisco Chronicle.