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.”

Click here to read the whole piece.