The Real Deal Miami

Banks are pulling big profits off refinance boom

June 08, 2012 03:45PM

Borrowers who save thousands on their home loans after loan modifications aren’t the only ones profiting heavily off the refinance boom. According to CNBC, banks are cashing in, too. Refinances, which now comprise 78 percent of residential mortgage activity, bring benefits to the bank in the form of new fees. Record-low interest rates have spurred millions nationwide to apply for modifications.

“Mortgage origination profitability is off the charts,” Paul Miller, head of financial research at the investment bank FBR, told CNBC. “Refis are surging, and many are loans that just refinanced 6-12 months ago.”

While the banks do forfeit yields when they refinance loans, many have made deals that essentially hedge the risk of falling revenue from decreasing interest rates.

Part of the surge going into the refinance market finds its strength from the government’s changes to the Home Affordable Refinance Program, which happened earlier this year. HARP lets borrowers with Fannie and Freddie loans to refinance underwater loans, and the changes dropped any limit to the amount of negative equity a borrower has in their home. CNBC said that HARP volumes have doubled to 180,000 in the first quarter of 2012 from the fourth quarter of 2011, which CNBC said will also help big bank servicers. [CNBC]