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) -- A government refinancing program intended to help underwater homeowners will boost bank earnings for a second straight quarter, and possibly into the third quarter, according to a report published Thursday by Citigroup analysts.

The retooled Home Affordable Refinance Program, known popularly in the mortgage industry as HARP 2.0,

already gave bank earnings a lift in the first quarter

, and will contribute to increasingly fat "gain on sale margins" for banks, analysts expect.

Bank of America has been an especially big beneficiary of the Obama Administration's retooled mortgage refinancing program.

Gain on sale margin essentially refers to the difference between the retail and wholesale cost of a mortgage. Let's say the loan costs the bank $100,000 to originate and the bank sells it for $106,000. That $6,000, or 6%, is the gain on sale (GOS) margin.

For HARP loans, the GOS margin is higher, according to an April 19 report from Keefe, Bruyette & Woods. KBW analysts argue that is the reason

Bank of America

(BAC) - Get Bank of America Corp Report

's gain on sale margins surpassed 6% while those of

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

were a comparably meager 2.36%. HARP accounted for 32.4% of the refinancings done by Bank of America in the first quarter, compared to just 16.2% at Wells Fargo.

One reason the margins are higher is that some banks are only accepting HARP for loans they originated themselves, according to the Citigroup report. Indeed, Bank of America and

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JPMorgan Chase

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confirmed they have policies of not allowing HARP for other banks' loans, as does Wells Fargo, according to



The New York Times

Wednesday, though Wells Fargo had no immediate response to an email seeking to confirm the report.

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That's because they would face additional liabilities that they do not assume when refinancing their own loans. The Obama Administration supports legislation that would address this issue.

Gains on sale margins are also higher on HARP loans because they cannot be refinanced. Buyers of mortgage bonds and another mortgage-related asset called mortgage servicing rights will pay more if they know the homeowner isn't able to refinance, because it eliminates some of the risk their interest payments will cease prematurely.

Despite these factors, Wells Fargo CFO Tim Sloan downplayed the effect of HARP 2.0 on margins during the bank's first quarter earnings call.

"The margins that we've had have been good, but I think, generally, they've been a little bit overstated in the market in terms of media reports and the like," said Sloan.

If KBW analysts are correct, that may be because HARP accounts for a relatively smaller percentage of refinancing activity at Wells Fargo than at other banks. Citigroup's report suggests investors looking to capitalize on the margins offered by HARP 2.0 shouldn't just look at the big banks, however.

"A more stealthy way is through our coverage of specialty lenders that are increasingly boosting capacity and originations," the Citigroup report states. Stocks Citigroup recommends in this context are

PennyMac Mortgage Investment Trust

(PMT) - Get PennyMac Mortgage Investment Trust Report


Nationstar Mortgage Holdings


. Like Bank of America, Nationstar also saw GOS margins of 6% in the first quarter. That compares to the company's historical range of 3-4%, according to Citigroup.

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Written by Dan Freed in New York


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