in Data, Government, Origination, Secondary Market, Servicing Banks continued to enjoy boosted earnings in the third quarter from increasingly strong gain-on-sale (GOS) margins, according to an analysis released by “”Keefe, Bruyette & Woods””:http://www.kbw.com/ (KBW).[IMAGE]According to KBW, the strength reflected several items, including industry capacity constraints (“”which continue to give originators pricing power””), strong application demand in the low-rate environment, and strong margins on refinances under the Home Affordable Refinance Program (HARP).””Anecdotal evidence suggests that margins have been very strong on HARP 2.0 loans. We believe this reflects the pricing power that originators have as we believe most HARP refinances thus far have been same-servicer,”” the firm’s analysts write in its latest _Mortgage Matters_ report. Additionally, because HARP loans demand higher risk premiums, KBW expects servicing costs may see future increases. With HARP demand expected to remain strong well into 2013, GOS margins are likely to remain elevated, analysts say.While GOS margins remained elevated in Q3, so too did representation and warranty costs for loan repurchases. New mortgage repurchase requests in the third quarter were mixed for companies that reported them, while outstanding requests were mostly higher.According to the report, current losses can mostly be attributed to loans sold to the GSEs.””Fannie Mae””:http://www.fanniemae.com/portal/index.html repurchases totaled $2.02 billion in Q3, and its balance of outstanding repurchase requests increased to $16.2 billion from $14.6 billion in Q2, the report says. Meanwhile, “”Freddie Mac””:http://www.freddiemac.com/ repurchases totaled $819 million, and its outstanding requests ticked up to $2.94 billion from $2.91 billion at the end of the second quarter.The outlier in terms of buybacks was “”Bank of America””:https://www.bankofamerica.com/, which reported a decline in new repurchase claims even as it expanded its rep and warranty loss reserves. According to the report, new claims declined significantly to $4.98 billion from $8.21 billion in the previous quarter, falling more in line with first-quarter levels of $4.7 billion. At the time, BofA noted “”that the sharp increase [in Q2] reflected both higher private label claims and GSE claims as a result of the company’s ongoing dispute with Fannie Mae.””Because BofA is “”in a unique position,”” KBW’s analysts say they “”tend not to extrapolate from their numbers.””While KBW expects claims to remain elevated through next year, the firm notes that trends suggest new rep and warranty claims from the GSEs seems to have peaked in 2011. However, given the high level of outstanding requests, “”lenders are likely to see elevated levels of provisions over the next year as well.””In September, the “”Federal Housing Finance Agency””:http://www.fhfa.gov/Default.aspx (FHFA) released an announcement outlining a new rep and warranty framework for conforming loans sold beginning in 2013. The major changes include a 36-month statute of limitations for repurchase obligations on loans that meet specific requirements. The new framework also includes a 12-month statute of limitations for HARP loans that meet the same conditions.The changes should be viewed as “”a positive for the mortgage industry,”” KBW’s analysts say.””Underwriting guidelines are very tight currently, partly because of uncertainty about GSE rep and warranty risk, and to the extent this risk becomes more transparent, lenders could potentially be more flexible in their underwriting standards,”” they write.