The Buyback Do’s and Don’ts

Wouldn’t it be great to have a fail-proof guide on how to avoid mortgage buybacks?

Of course it would. Does one exist? Well, there is some guidance out there.

At the recent New England Mortgage Bankers Conference I attended in Newport, R.I., a session on buybacks attempted to give investors a primer on the do’s and don’ts.

Les Parker, president of Parker and Co., had a particularly informative presentation. Want to know the top five reasons for buybacks? Here they are: 1.) Early payment default. 2.) Loan closed noncompliant. 3.) Underwriting errors. 4.) Unsupported property values. 5.) Misrepresentation of employment, income or occupancy.

Those are pretty clear and easy to follow. But it’s a challenge.

Parker’s presentation outlined a loan from pre-underwriting to loan servicing stages and found 16 separate compliance areas, ranging from loan quality to MERS requirements.

Add in requirements from the GSEs, the Federal Housing Administration and investors, and you have one thick layer of factors to consider in order to avoid having the loan blow up in your face and have it handed back to you like a balky child is handed back to its mother or father!