As Fannie Mae and Freddie Mac dig deeper into mortgage underwriting in an effort to mitigate loan losses, risk could be growing for builders' mortgage affiliates.

Increasingly over the past few quarters, the GSEs have been forcing banks to take back bad mortgages after loan document reviews reveal shoddy underwriting. This so-called put-back process could trickle down to builders' mortgage arms in some cases, as banks forced to take loans back on their books demand the same from mortgage originators, from whom the banks purchased the faulty loans.

Just how much affect this trend will have on builders' balance sheets is difficult to calculate with any certainty, say housing analysts; any model is subject to a number of potentially flawed assumptions, from the number of mortgages that builders' mortgage subsidiaries underwrote that are still outstanding to the rate at which the GSEs will force the put-back issue.

Management teams at a few public builders already announced that they've set aside reserves to deal with any fallout from the issue. Pulte Group put aside the most relative to peers at $103 million while D.R. Horton, M.D.C. Holdings, and Ryland Group reserved $28 million, $8 million, and $15 million, respectively, according to company and analyst reports.

In a recent research note on the topic, Citi analyst Josh Levin estimated that across the 10 public builders in his coverage universe as much as 3.5 percent of the builders' book value could be subject to mortgage put-back risk.

But arguably the bigger issue with mortgage put backs is their potential effect on builders' cash flows. In some cases, the builder could be subject to make-whole provisions, meaning the builder will have to pay the bank the full amount of the outstanding loan and literally take back the property, which it will then have to market and sell. From a timing perspective, this scenario stresses cash flow because it ties up more of the builder's resources for a longer period before the net loss is realized than if the builder was simply obligated to pay the bank the difference between the value of the outstanding loan and the actual value of the home.

However, despite these concerns, many housing analysts say the issue is unlikely to have a major negative effect on builders' overall businesses. Some argue that builders have historically been conservative in their underwriting, protecting them from some of the potential put-back risk. For example, in his note on the subject, Citi's Levin cited a research paper by Claudine Gartenberg, a PhD student at Harvard Business School, that showed that builder-originated mortgages have performed "significantly better" than other mortgage companies' loans.

Given these factors, Levin's takeaway was: "While we think mortgage putback risk is certainly worth monitoring, it is possible that it may never emerge as a material issue for the home builder stocks."