Distressed borrowers holding a mortgage from a small bank who want to utilize the Home Affordable Refinance Program could be forced to do business with a larger financial institution if their lender does not participate in the initiative.
HARP guidelines loosened to help a greater number of underwater homeowners last fall. As a result, the program's book of business nearly doubled during the first quarter to an estimated 180,000 refinances.
Previously, underwater homeowner could not qualify for the program if they were saddled with 25 percent negative equity or more. Under the new rules, the Federal Housing Finance Agency eliminated this cap.
While this number reflects the initiative's success, critics recently addressed issues that borrowers with loans from small banks are facing, such as high fees when switching to a larger lender.
"It's probably a tougher underwrite than a regular deal," mortgage broker Mike Metz told HousingWire. "It is not at all what the consumer thought they were getting."
However, lenders argue that since so many more borrowers with weak financial standings are allowed to participate in the program, the high fees help to compensate for the risk involved.