|President Barack Obama|
Story updated with mortgage putback loss estimates for more banks and additional loss severity information for key loan servicers. NEW YORK ( TheStreet) -- Bank of America ( BAC), JPMorgan Chase ( JPM), other mortgage loan servicers and even mortgage insurer MGIC ( MTG) could see "an upside surprise" from President Obama's expanded mortgage refinance program, according to an analyst. Edward Mills of FBR Capital Markets said in a report Monday morning that investors holding shares of the large mortgage servicers, including Flagstar Bancorp ( FBC) and First Horizon National ( FHN), could benefit from the Federal Housing Finance Agency's expanded home refinance plan, "if the program is very explicit in waiving representation and warranties risk for servicers of legacy mortgages."
The Federal Housing Finance Agency, or FHFA, is the regulator for Fannie Mae ( FNMA) and Freddie Mac ( FMCC), the government-sponsored mortgage giants that were place under government conservatorship in September 2008. The White House has pushed for the regulator to expand its Home Affordable Refinance Program, or HARP, so that borrowers with mortgages held by Fannie and Freddie -- representing roughly half of all U.S residential mortgage loans -- will be able to refinance their entire loan balance at today's historically low rates, regardless of how much value the underlying home has lost since the loan was originated. Under HARP, borrowers are limited to refinancing up to 125% of a home's current market value, but with millions of borrowers seeing values drop 50% or even more since taking out mortgage loans at the peak of the real estate crisis, even that generous loan-to-value limit isn't enough. Early next year, the 125% loan-to-value limit will be lifted. The FHFA is set to release on Tuesday details on the expanded HARP, including underwriting requirements and release of certain liabilities for the large loan servicers. The expanded HARP will also feature the waiver of risk-based fees for borrowers who go with shorter terms for the refinanced loan. Not only will the borrowers save on the fees if they go with a 15-year fixed mortgage loan rather than a 30-year term, they will enjoy lower rates. Bank of America, for example, on Monday was offering a 30-year fixed rate of 4.25% with a fee, or "points," of 1.125% paid up front for a $200,000 mortgage loan refinancing, while the 15-year rate with the same points, was 3.625%.