Dealing with Loan Repurchase Requests from Mortgage Lenders

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Have you ever noticed there are certain things people don’t like to talk about? 

For example, most of us don’t want to talk about our hemorrhoids or most recent colonoscopy in public. Enough said!

Mortgage bankers have a couple of issues they really don’t enjoy discussing. One of those is loan repurchase requests.

If you work in the mortgage business for long enough, whether it be for loan fraud or an unanticipated underwriting variance, anyone who writes loans will eventually find themselves dealing with a loan repurchase requests.  
Yesterday, we received a copy of an email from a very well respected and knowledgeable attorney relating to loan repurchases.  He has negotiated 200+ investor loan repurchase requests on behalf of mortgage bankers. 

Here are some of his recommendations when you get a letter from an investor.

  1. The agreements speak for themselves.  If the onus falls on you, accept the fact that no legal defense will eliminate the liability.  “It is what it is”
  2. Investors have deep pockets and can spend a lot more money on litigation than a small banker or broker.  Don’t spend a quarter to save a nickel.
  3. Communicate, communicate and even communicate more with investors.  Don’t hide and think it will go away.  Hiding a letter from an investor in your desk drawer doesn’t make a repurchase request disappear.  
  4. Be willing to negotiate even if you believe it isn’t right.  They actually want to keep you in business so you can take care of future repurchase issues.  
  5. Trade future volume as an approach to settle with them. We’ve seen many deals that allow a mortgage banker to settle with a forward commitment to sell a specific amount of loan production over some period of time.

A great book to assist you in the process of negotiating with investors is Getting to Yes by the Harvard Negotiation Project. 

My take aways are:

  • Separate the people from the problem
  • Focus on interest, not positions
  • Invent options for mutual gain
  • Insist on using objective criteria

Most mortgage bankers don’t want to talk about or deal with investor loan repurchase requests, but they are not going to miraculously disappear through define intervention.  If you receive one, develop a strategy to work with the investor in a comprising way and settle in a way that allows you to continue to have a business relationship with them.