Can You Really Afford a Repurchase?
Written by: Bill Dolan, CMB, AMP
Just returned from the NEMBC in Portsmouth, NH where I must say after attending the Senior Mortgage Executive lunch and discussion moderated by John Spillane and George DeMello on Wednesday and the Fireside Chat with Sandra Thompson, Director of the FHFA, moderated by Bill Dolan and Dave Brennan on Thursday morning, both programs had the conference “buzzing” and appeared to be the highlights of the NEMBC.
A real concern, however, filtered throughout the lobby, meeting rooms and at dinners among the lenders who were addressing the current repurchases and buybacks that are continuing to escalate upwards and have been in recent quarters. The repurchases for the most part stem from GSE (Fannie Mae, Freddie Mac) loans purchased during 2020 and 2021 years even with minor defects and flaws in documentation, underwriting, and payment history. The Agencies are also challenging appraisals, self-employed borrowers, or borrowers with unusual income streams (2-3 jobs) and DTI’s. The bottom line here is a large portion of these repurchases hinge in 2020 and 2021 but there is a major concern associated with 2022 loans as they move through the agencies quality-review pipeline this year.
The issue with the GSE’s is that they are being far too aggressive with repurchases when it comes to underwriting defects that under the rep and warranty provision could be cured prior to an actual buyback demand.
Ask yourself the following question: If a mortgage does not meet secondary market QC standards, why would a community bank or credit union ever want to be saddled with a low interest loan sitting in your portfolio for possibly the next thirty (30) years as a non-saleable loan?
Another question that begs an answer is: just how deep a dive is your QC department performing due diligence analysis for potential defects through the pre-funding, post-closing, and the appraisal review processes? If you don’t know, can you afford to have a future buyback or repurchase?
Are you looking at your trending reports and communicating those results to your Executive Management team and to your Board, keeping them apprised, as they should be, and as stipulated in the GSE’s Quality Control plan requirements?
If you are looking to reduce expense during this current cycle and are assured that your loans are compliant with GSE requirements, why would you not pay for these services on an as-needed, per loan basis (variable cost) versus full-time employees with benefits that could be utilized in far more productive areas of your organization that may require far more attention today than waiting for the next loan to be originated and closed.
While in the strategic planning and budgeting mode for 2024, why not learn more about SCA’s Quality Control Services consisting of Pre-Funding, Post-Closing and Appraisal review?
Connect with Bill Dolan, Director, at (617) 694-2617 or email Bill at: WDolan@scapartnering.com to request a meeting at a time that suits your schedule to discuss how SCA can address these and other issues with our Chief Strategist Consultants. While you’re at it, take a look around our website to learn more about the consulting services SCA provides in the areas of: Strategic Planning/Budgeting, Sales & Marketing, Operational/Workflow Assessments, Technology (Implementations POS, LOS, PPE platforms), Compliance (CRA/Fair Lending, HMDA LAR Reviews, Upcoming Regulatory Exams), Credit Reviews, Asset Management (Purchases/Sales), Due Diligence, Staff Training, and Staffing.
