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Preventing Buybacks: What You Need to Know
IMF Publications, June 2010
Did you miss the Preventing Buybacks Webinar? Get the audio conference proceedings today
The Heat Is On: How to Stay Out of the Fire
Freddie Mac, Fannie Mae, private mortgage insurers and FHA have been aggressively enforcing buyback provisions to limit credit losses. In fact, the GSEs’ loan reviews led to a big jump in bank repurchases during 4Q09, and the year totaled a whopping $30.87 billion of buybacks, quadrupling 2008’s demands. The MIs are carefully examining origination documents earlier in the foreclosure process.
The atmosphere has soured among some business partners who are increasingly at odds over repurchases and MI policy rescissions. Lenders are challenging the efforts of investors and insurers to characterize loan problems as breaches of their representations and warranties. Many say the buyback factors cited today are minor technical glitches that have been overlooked in the past—many disputes are leading to costly legal battles.
At the same time, secondary market investors and insurers have to balance the line between managing their soaring credit losses and aggressive buyback demands that could destabilize a counterparty already in financial distress or alienate a key business partner.
Emerging new rules on securitization will redefine the reps and warranties that lenders make when they sell their production. Industry groups are also developing new mechanisms for enforcing these agreements and resolving conflicts when they arise. At this must-attend event experts provided guidance on what you should be watching for to manage your current risks and prepare for emerging requirements.
These experts shared their insights and answered questions:
- Paul Fischer, EVP Loss Management, Radian Guaranty Inc
- Pamela Padgett, VP Single-Family Underwriting & Quality Control, Freddie Mac
- Justin Vedder, Principal, EVP, PBIS Insurance Services Inc, The Prieston Group
- Guy Cecala, Publisher, Inside Mortgage Finance (moderator)
This 90-minute Session Covered:
- How should you exam current loan modifications for potential liability,
- What are top loan issues or problems cited when demanding buybacks,
- Are there steps to minimize the damage to business relationships,
- What would be inappropriate buyback requests,
- What are the trends in repurchase activity,
- Which provisions in existing regulations are most likely to increase these risks,
- What effects will the Loan Quality Initiative have on this issue,
- How to avoid such repurchase demands on new loans,
- How successful have others been in recoveries from third parties,
- What do you need to know about the reps and warranties you proclaim,
- What recourse do you have if you feel the request is unwarranted,
- Are the push-backs mostly defaulting mortgages.
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