New government aid programs for troubled homeowners are forcing cost-cutting banks into a tricky balancing act.

The largest mortgage servicers, including Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), and Citigroup Inc. (C), are trying to compensate for weak revenue growth by slashing expenses this year. But their belt-tightening efforts are being complicated by a wave of new mortgage refinance applications, due in part to a revised Home Affordable Refinance Program, known as Harp 2.0.

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