Servicers that are submitting buyback or indemnity requests to loan issuers need to conduct early and clean audits to ensure that the buyback demands will stand up in court, according to attorneys who spoke at the Western States Loan Servicing Conference in Las Vegas.Paul Levin, vice president and litigation counsel for IndyMac, urged lenders to complete audits quickly after a problem or early payment default occurs. He said it's best to do the audit before the loan has actually gone into foreclosure. "I often have a lot of push-back when I have an audit that occurred after default or even after foreclosure and REO," he said. It is particularly important to identify property valuation issues as early as possible, Mr. Levin said, since appraisal fraud has been a growing concern for the industry. If the appraisal is off base or fraudulent, that can have a dramatic impact on loss severity, he noted. Because an appraisal is ultimately an opinion, Mr. Levin said he believes it is rarely worth pursuing litigation over an appraisal unless the valuation is inflated by at least 20%.

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