Loan Repurchase Requests a Reality for Foreseeable Future

TheStreet's Laura Kulikowski this week examined the rising tide of mortgage repurchases (also called put-backs) in one of the best reports on the issue I’ve seen to date.

Like other due diligence and credit risk management firms, Allonhill is asked frequently to help investors build a case for repurchases, and to help originators/seller fend off such claims. There are many complexities with repurchases, not the least of which is unraveling the loan’s story to determine the cause of a default or delinquency – was it bad underwriting at the onset, or did a bad economy turn an otherwise good loan bad.

I agree, particularly, with two points in the article. One is that the industry can expect to see repurchases actively pursued on seasoned deals for the next year. It likely will take that long to wade through current deals for potential repurchase claims. Issues around repurchases will linger far longer than a year, but after a year I think the high degree of activity we see now will have abated.

As long as there are securitizations issued, and even whole loans traded, there will be repurchases. Unless, that is, the closing statement from Corky Watts holds true:

'On a positive note though, mortgage brokers are becoming 'really good at insuring every loan and making sure every loan is high quality,' Watts says. 'In the long run that's going to be very positive for the industry.'

I am a believer in connecting the dots. If originators don't want to see repurchases, and investors don’t want to buy them, then both sides should do their part to make sure only good loans go into deals and that only deals with good loans are purchased. If this holds true past the first couple dozen new transactions that come out, it will, indeed, have been a positive thing for the industry.