The Obama administration’s initiative to prompt more homeowners to refinance Federal Housing Administration home loans has been met with a shrug by Massachusetts bankers – but with enthusiasm by mortgage companies.
The program is known as a “streamline” refinance, and it cuts fees for borrowers refinancing into other FHA mortgages. Borrowers can refinance with lenders other than those who hold the original mortgage, and they aren’t required to verify income, employment or credit. As a measure intended to help underwater homeowners, the program gives borrowers a pass on appraisals. The streamline program only applies to loans made before 2009.
As far as Massachusetts community banks are concerned, the program, while a nice idea, isn’t a boon for banks or borrowers, Massachusetts Bankers Association Executive Vice President Jon Skarin told Banker & Tradesman.
Skarin said FHA loans haven’t been as popular or common in the Bay State as they have been in other states, so there isn’t much opportunity for banks to either take market share from competitors or refinance troubled loans on their own books.
Traditionally, he said, mortgage companies have done more FHA lending in Massachusetts than banks. And according to data obtained from The Warren Group, publisher of Banker & Tradesman, Skarin’s right – mortgage companies do far more FHA business than banks.
In 2011, the top 10 FHA-lending mortgage companies in Massachusetts did $696 million in FHA business, including both purchases ($270 million) and refinance loans ($426 million). During the same period, the top 10 FHA-lending banks did $426 million in FHA business, $284 million in purchase loans and $142 million in refinance loans.
So far this year, the top 10 FHA-lending mortgage companies have done $727 million in FHA business – $480 million in refinance loans – while their banking counterparts have done $420 million total, with $204 million in refinance volume, according to The Warren Group.
So while banks and mortgage companies have mostly met or surpassed FHA lending totals for last year, mortgage companies continue to do about twice as much FHA business as banks.
The streamline process was announced in the first week of June. During that month, the top 10 FHA-lending mortgage companies in Massachusetts did $20.2 million in FHA refinance business. In the same month a year earlier, the top mortgage companies did $13.5 million in FHA refinance business.
The top FHA-lending banks last month did $13.3 million in FHA refinance loans compared to $2.6 million a year prior.
Skarin said Massachusetts banks only started doing FHA loans in any significant numbers in recent years, as interest rates sweetened.
‘Other Options’
“There are just so many other options (in Massachusetts),” Peter Alden, president and CEO of Worcester-based Bay State Savings Bank, told Banker & Tradesman. But until last year, Alden had spent his banking career in New Hampshire, where he said the FHA refi streamlining would be more popular.
“There’s a lot of FHA in New Hampshire,” Alden said. “It’s to bridge the gap for a loan down payment, and it is a good program; there’s just a lot of other options here.”
But Rich Dinges, president of Sturbridge-based Northpoint Mortgage, said the streamline process has helped mortgage companies perhaps more keen to take on FHA products.
FHA insurance premiums have increased over the last two years. So while low interest rates have brought about significant increases in refinance volume, higher FHA premiums have taken some of the shine off those savings and borrowers have chosen not to take advantage of the low rates.
Streamlining is meant to solve that problem. The FHA will drastically drop mandatory upfront insurance premiums from 1 percent of the loan balance to .01 percent. The FHA will also decrease annual premiums from 1.15 percent of the loan balance to 0.55 percent.
“The new program has been quite helpful in Massachusetts, and also throughout New England,” Dinges told Banker & Tradesman. “It had been difficult justifying FHA refinances prior to this program due to the multiple increases in both upfront and monthly FHA mortgage insurance premiums over the past few years.”
Now, though, Northpoint has seen an increase in refi applications from FHA borrowers. Streamlining, Dinges said, “has allowed us to work with some past clients for whom it did not make sense to refinance previously.”
Email: mbrown@thewarrengroup.com
