It’s important that lenders also look internally for ways to defend against loan buyback requests.
Mortgage investors will tell you that the unprecedented COVID years, when volumes skyrocketed and many underwriters were working in uncontrolled home environments, has led to a large number of minor loan defects. Despite the fact that these loans are still performing, Fannie Mae and Freddie Mac are sending more of these loans back to the lenders who originated them.
Loan buyback requests are never a good thing, but at a time when loan volumes are historically low and lender profits are lower (or nonexistent), it hurts even more.
Paul W. Harris, writing on the First American blog, points out that “GSEs have the right to put back loans for a variety of reasons for up to 36 months after origination.” This means there could be more buyback requests coming.
When they do, it will cost them more than ever. According to Scott Olson of the Community Home Lenders Association: “Because mortgage rates have doubled in the past year, the cost to lenders of taking a loan out of an MBS pool has skyrocketed. As a result, the back-end loss to the lender on a repurchase is around 30% per loan. This is over $100,000 on an average loan and over $300,000 for high-cost loans.”
On its blog, First American points to fraud prevention as a defense against buyback requests. That’s true. External fraudsters can do a lot of damage. But it’s also important that lenders look internally for ways to defend against buybacks.
The most impactful thing the lender can do to avoid investor buyback requests is to ensure the quality of every loan they originate. This means the data needs to be accurate, timely and the origination process itself be fully compliant with all investor and regulatory requirements.
Was this more difficult during COVID? We would question that, as the same tools were in use by the same trained underwriters and processors during that time. This suggests that any problems that were occurring during COVID are likely still occurring for lenders today.
One way MCP helps lenders originate quality loans -- and everything about this next generation LOS was designed for this specific purpose -- is to clearly define roles and responsibilities within the lending enterprise and provide a complete audit trail of all actions taken during the origination process. That solves 90+% of the problems.
If the software is being used correctly by the people who are authorized to use it, high quality loans will be the result for every borrower who qualifies for a mortgage.
But that’s the other pitfall that some lenders can fall into that can lead to a buyback request.
When the market turns and volumes fall, every loan suddenly becomes very important, not just to company management but to every loan officer whose compensation is tied to production.
The temptation to cut a corner can be very high, not just because someone’s family is depending upon that income, but also because the applicant sitting across the table desperately wants to get into a home of their own. Ignoring critical data that would disqualify the borrower in the hopes that it will be missed later is not a viable strategy. The GSEs have proven that.
Delivering high loans is absolutely possible with today’s advanced loan origination technology. Using it to deliver those loans falls to a disciplined loan origination organization.
To find out more about how the Mortgage Cadence MCP can help protect your institution from future buyback requests, visit us online today.
By Joe Camerieri, EVP, Sales & Strategy at Mortgage Cadence
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