Sep 01, 2011
Why lenders don’t like HARP
01 Sep 2011
Posted by Andrew Kantor
Although something like four million homeowners qualify for the Home Affordable Refinance Program, only about 800,000 have taken advantage of it. Why’s that?
Housing Wire’s Kerri Panchuk has a terrific story that gives the answer: Lenders are afraid of “putback risk” and don’t push the program.
See, if a Lender A offers someone a HARM refinancing, and then it turns out that Lender B — which wrote the original loan — didn’t do a good job with the underwriting, Fannie or Freddie might refuse to buy it or worse, might require Lender A to buy it back.
In a sense, lenders don’t trust one another’s underwriting to meet Fannie/Freddie standards.
[Federal Reserve Governor Elizabeth] Duke told a housing conference the program could attract more lenders if authorities show a willingness to substitute a minimum number of timely payments as a “proxy for sound original underwriting.” She said this construction would “relieve the liability of the refinancing lender for the mistakes of previous lenders.”