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Repurchase Demands - Defenses    
June 29, 2023
QUESTION
I am the Compliance Officer and General Counsel for a lender. I would like some information about common defenses to repurchase demands. 

We conduct loan file reviews for purposes of determining whether a repurchase demand is valid. These are careful reviews of the loan files. We are also familiar with the usual reasons on which investors base their repurchase demand. 

I am interested in a better understanding of the common defenses to repurchase demands.
 
What are some common defenses to repurchase demands?
ANSWER
In my view, the response to a repurchase demand is usually a function of the amount in dispute, the status of the relationship of the loan originator with the purchaser or investor making the demand, and the stated grounds for repurchase. 

Most defenses arise directly from the terms of the contract governing the purchase and sale of the loan(s) at issue. Even if the contract appears to govern the basis of the repurchase demand, a defense may exist when the contract contains conflicting or ambiguous provisions.

Mortgage loan purchase agreements generally contain provisions that relate to loan-level representation, warranties, and covenants of the seller and the conditions under which the seller must cure, repurchase or substitute a mortgage loan in the event of a breach. ...
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Did You Know?

What are the
seven primary factors
to consider in
prefunding
quality control audits?

A full file review to confirm that the following documents are present and complete, the data relied upon in making the underwriting decision is accurate, and the underwriting decision is adequately supported:*

  1. AUS data integrity;
  2. Employment;
  3. Social Security Number ;
  4. Assets;
  5. Appraisal;
  6. Income calculation documentation;
  7. Mortgage Insurance.

*Source: Fannie Mae: Quality Control Self-Assessment (2021)
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