The Mortgage Industry Secret that Prevents You from Getting a Loan

Share Article

The cascade effect of mortgage buy-backs within the industry is limiting or locking out consumers from getting a mortgage.

Repurchase Demands result in fewer mortgage products for the qualified borrower.

If your credit is good and you’ve tried to get a home loan, you may have found yourself in the perplexing position of being told you aren’t qualified—even if you are. What’s going on here? The answer is a secret problem in the mortgage-lending business called Repurchase Demands (loan buy-backs)—and they are slowly strangling the industry. “Thus, fewer loan products are available for the qualified borrower,” says Scot Baker, a mortgage repurchase defense expert.

The problem started with the popping housing bubble in 2007. As the financial system collapsed, so did mortgage loans that had been securitized. This caused a systematic failure at Freddie Mac, Fannie and Ginnie Mae (the sources for FHA and VA loans). Congress demanded that these institutions become solvent after two major bailouts.

Today, Fannie Mae, Freddie Mac, and the Mortgage Insurance Companies are pushing back on loans up to 5 years old to the aggregators (Wells Fargo, Citigroup, Chase, Bank of America, etc.), who in turn are forcing buy-backs on the originators (Main Street mortgage companies). In the first quarter of 2010, these agencies forced lenders to repurchase $3.1 billion in mortgages, up 64% from one year earlier. Additionally, Ginnie Mae pushed back $15.5 billion in loans in the first quarter 2010 versus $4.9 billion in the year ago quarter. To further complicate things, the FDIC is pushing back on loans they inherited from seized banks, most notably Indy Mac.

The effect of loan buybacks is far-reaching and one of the major obstacles to a housing recovery. Repurchase demands have led to fewer lenders, an increase in loan loss reserves, increased overhead to handle the buyback demands, fewer choices for the consumer, and a lack of loan product availability for everyone, especially the self-employed. The overall effect on lenders is to tighten guidelines, a move to more time-consuming underwriting of each file, and a reluctance to take reasonable risks.

The result: You can’t get a loan, even if you’re qualified.

“Most of the trouble with ‘bad loans’ in the past centered around stated income loans above 80% loan-to-value, loose underwriting guidelines and pricing models that enticed lenders to place borrowers in loans not in the borrowers’ best interest,” Mr. Baker says. “However, my company, Pyramid Quality Assurance, sees a large percentage of buy-back demands on loans the originating lender underwrote to the program rules and guidelines in place at the time. Facts arising after the loan origination—such as job loss, new debt, misreading of the credit reports or closing documents—are being asserted as reasons for pushback. We help Main Street mortgage companies defend against repurchase demands.”

“An optimistic view is that the mortgage industry will deal with this issue for at least 2 more years. Realistically, it is likely that the high level of pushback will continue for 3 to 5 years,” Baker said.

About Scot Baker
Scot D. Baker is Sr. V.P. of Business Development at Pyramid Quality Assurance, a full-service loan analytics firm specializing in Repurchase Defense and Quality Assurance. Mr. Baker has over 20 years of mortgage banking experience. He can be reached at 877.706.5791 X 214 or
About Pyramid Quality Assurance.

Pyramid Quality Assurance, LLC is a full service analytics firm with extensive experience in mortgage industry Quality Assurance programs and Loan Repurchase Defense. Our senior staff have successfully defended Repurchase Defense cases, saving our clients millions of dollars. The company utilizes a comprehensive analytical approach providing easily understood solutions tailored to our clients’ needs. PQA’s process allows our clients to increase efficiencies, leading to increased profits, improved cash flow and lowered loan loss reserves. Pyramid Quality Assurance works with small to large banking and mortgage banking institutions, home builders and investors across the U.S.A.


Share article on social media or email:

View article via:

Pdf Print

Contact Author

Scot Baker