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Wall Street Not Giving in on 'Buybacks': The biggest issue was 'early payment defaults.'.
Investment banking firms and other correspondent investors in nonconforming loans still aren't budging much when it comes to loan "buybacks," according to industry officials.
It's hard to determine exactly how much in buyback requests have been made this year, but industry executives continue to talk about the issue - mostly off the record. (Buybacks were cited in the failure of Acoustic Home Loans of California earlier this year, and played a role in MortgageIT, New York, selling to Deutsche Bank.)
Buybacks first became an issue in late 2005 when secondary market investors caught a breath from the production juggernaut of the past three years and finally took a microscope to all the loan files they'd been amassing. What they found - in some cases - didn't pass muster. The biggest issue was "early payment defaults," particularly on stated-income loans.
Meanwhile, one executive involved in due-diligence reviews said primary originators are getting sick and tired of buyback requests, and are even asking Wall Street firms to renegotiate their purchase contracts. The official said certain Street firms are willing to renegotiate, but that they definitely want something in return.
He said some investors are willing to wave buybacks but only if the primary funder sells the loan at a cheaper price. "For 25 basis points the seller can get better terms," said the official. Some Street firms are going so far as to ask for massive forward commitments in exchange for giving a break on buybacks.
Under standard "reps and warranties" a secondary market investor can request that the primary originator buy the loan back if a mortgage goes delinquent during the first 90 days. After 90 days the buyer of the loan is on the hook and has no recourse.
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Source: HighBeam Research, Wall Street Not Giving in on 'Buybacks': The biggest issue was 'early...