Government Sponsored Enterprise (GSE) buybacks have become a hot topic of debate within the mortgage industry. On one side mortgage companies and trade groups contend that demands are up significantly because the agencies are aggressively looking for minor flaws on performing loans. In response, the GSEs have said that they aren’t doing anything differently and the volume of putbacks is simply the result of several ultra-high-volume years during which underwriting was more challenging in the COVID-19 work-from-home environment.
One thing that most observers agree upon, however, is that dealing with buyback demands has gotten significantly more challenging from an economic perspective. According to recent figures from the Mortgage Bankers Association (MBA), the average mortgage bank lost $1,972 per loan in Q1.
At the same time, the dramatic shift in interest rates is making buybacks more expensive. In a recent blog, Scott Olson of the Community Home Lenders Association (CHLA) noted: “What has changed for lenders is a significant increase in their back-end loss on a repurchase. Because mortgage rates have doubled in the past year, the cost to lenders of taking a loan out of an MBS pool has skyrocketed. As a result, the back-end loss to the lender on a repurchase is around 30% per loan. This is over $100,000 on an average loan and over $300,000 for high-cost loans.”
What First American Data & Analytics is Hearing
GSEs have the right to put back loans for a variety of reasons for up to 36 months after origination. In the case of fraud, the period is even longer. Recently, we have heard from several of our customers that significantly more than a 10% sample of loans are being audited by their investors, especially in areas of employment, income, and undisclosed debt.
At the MBA Secondary Conference this spring, representatives from both Fannie Mae and Freddie Mac acknowledged that buybacks were an issue for the industry. But they said the higher level of putback demands was simply the result of the huge spike on volume that had occurred over the prior two and a half years. According to HousingWire, Freddie Mac said it “is in talks with lenders to address the problem through a more customer-focused approach.”
Based on our discussions with lenders, undisclosed debt and income verification issues tend to be the most common reasons for putbacks – similar to how these issues have been for the last 10 years. Collateral valuation, which has been a major issue in the past, seems to be less of a factor recently.
Our Data & Analytics Product Team actively tracks data for some of our larger clients. Noteworthy trends they have noticed include:
- A very slight increase to a calculated Fraud Risk Rate through the end of Q2 2023.
- A steady increase in Agency List issues during the last 12 months.
- An increase of participant names within the FraudGuard data that match at an 85% confidence rate to the agency lists provided to us.
- A consistent trend with Undisclosed Asset / Liability Issue at a 7-8% rate through the end of Q2 2023.
- A consistent trend with Occupancy Issues remaining around the mid—3% rate during the last 12 months.
How First American Data & Analytics Can Help
Our FraudGuard® platform leverages data and analytics to uncover fraud and misrepresentation risk across many quality control categories. Recently, we added a second credit bureau to our platform to provide even greater accuracy in monitoring undisclosed debt.
In addition, FraudGuard is able to integrate the new Uniform Residential Loan Application (URLA) and capture additional employment and income data that was previously not available on the 1003 form. This has enabled First American Data & Analytics to build out additional alerts in FraudGuard to address findings from the expanded data set provided through URLA.
If you’re not a current FraudGuard customer and would like to learn about how our solution can help you navigate these muddy waters, connect with us to get a demo scheduled.