Despite 4 million borrowers qualifying for the Home Affordable Refinance Program, Federal Reserve Governor Elizabeth Duke said lenders are reluctant to push the program out of fear the review process will highlight underwriting issues, forcing financial institutions to take on "putback risk."
During a speech in Washington Thursday, Duke said putback risk "is the possibility that a loan originator will have to repurchase a loan from the government-sponsored enterprises because the underwriting violated GSE guidelines."
Because lenders fear underwriting reviews on loans filed through HARP — many of which were acquired from other originators — the refinance program is not reaching its full potential, Duke said.
To date, only 800,000 borrowers have refinanced mortgages through the program.
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