FBR Capital Markets said the broad changes to the Home Affordable Refinance Program (HARP) were outlined by U.S. President Barack Obama's administration on Oct. 24. However, the release of most of the technical details was delayed until Nov. 15.

These details will include: the extent to which representations and warranties will be waived on legacy loans; the process for the servicer to ensure that the new loan will not have any representation and warranty risks; the level of risk premium paid by the borrower (known as a Loan Level Pricing Adjustment or LLPA) for refinances of 30-year mortgages; how the new loans with loan-to-value ratios above 125 percent will be pooled, securitized and guaranteed by Fannie Mae and Freddie Mac.

"We have always contended that 'the devil is in the details' to determine the ultimate success of the program. The changes to the HARP program are geared toward underwater homeowners who have mortgages owned or securitized by Fannie Mae or Freddie Mac," said Edward Mills, an analyst at FBR Capital Markets.

To be eligible for the program the homeowners must be current on their mortgage and must not have been more than 30-days late on any mortgage payment in the last 12 months.

The program is structured to incentivize homeowners to refinance into 20 or 15-year mortgages, rather than 30-year mortgages. There is no maximum loan-to-value limit.

Qualified homeowners just need to provide verification of a source (not amount) of income to qualify and the process (where the refinance is with the same servicer) is streamlined by using existing automated appraisals on record at Fannie Mae and Freddie Mac.

With much of the program geared toward current homeowners refinancing into shorter duration loans, Mills believes this will ultimately limit the number of homeowners who participate.

Where Mills believes there could be an upside surprise, more than anticipated, but still short of a game changer, is if the program is very explicit in waiving representation and warranties risk for servicers of legacy mortgages.

If the legal liability release is explicit to the point where servicers feel there is a meaningful release from repurchase claims, Mills would anticipate lenders to mine their servicing portfolios and actively push borrowers to refinance.

Mills notes that borrowers who are eligible to refinance are not the most significant repurchase risk because they have a strong track record of being current; they, still, on the margin represent a higher-than-average repurchase risk given the current LTV of their loan.

Removing a repurchase risk on these high-LTV loans will help remove some of the tail risk to repurchases related to representations and warranties.

Without a doubt, the servicer to most benefit by an upside surprise in the HARP 2.0 program is Bank of America Corp. (NYSE: BAC), particularly given its legacy Countrywide exposure. Other servicers that Mills believes could see a positive reaction from details that are viewed as "headline positive" include JPMorgan Chase & Co. (NYSE: JPM), Flagstar Bancorp Inc. (NYSE: FBC) and First Horizon National Corp. (NYSE: FHN).

"Beyond the servicers, we would anticipate that given the high-beta nature of the mortgage insurers, who would benefit by not paying claims on agency loans with mortgage insurance that avoid default, could also participate in any 'headline positive' announcement. The preferred name would be MGIC Investment Corp. (NYSE: MTG)," said Mills.