The quality of the loan is determined by underwriting policies and due diligence. It is inevitable that some loans will go bad if the deficiencies of a loan are not caught in time and the loan is sold in secondary marketing. In this course of events, the investor may require the seller to repurchase the loan if the loan is classified as deficient by the “Repurchase Agreement”
When the repurchase request is made the seller could simply accept the loss or appeal the request. The Credit Risk Repurchase Department is responsible for the underwriting of loans which investors have deemed to be deficient for certain reasons. Therefore, the objective of the Repurchase department is to appeal the investor demands of repurchasing the loans, or indemnifying the loans if circumstances so warrant. In short, repurchasing becomes a loss avoidance and management task.
“The repurchasing automation scenario might not be critical for small originators. However, it is a major problem for large originators. From a pure bottom line perspective, one bad loan can wipe out the profits of five good ones.”
What makes repurchasing a challenge is the fact that the root cause of the deficiency may have been the fault of a multitude of groups and many different people. Also, repurchasing is generally made under an investor specific Repurchase Agreement. Bank departments can also requests for repurchases in a process tat is referred to as “self-initiated.”
All stakeholders require consistent and timely status updates once the “referral” is received, and each loan has its own follow-up requests. It is imperative that the communications are tracked since repurchasing is integral to the business process. In addition, a complete audit trail is required to meet various deadlines and to maintain transparency. Usually, the process begins with an investor’s inquiry being logged. Then an appropriate response is prepared with the assistance of the appropriate business group. After that the response is reviewed, sanctioned, and submitted to the investor. If the seller is servicing the loan, the process gets more complicated.
The process repeats if the investor is not satisfied with the seller’s response. If the repurchase is the best option then the Credit Risk Department initiates the settlement process. The settlement process generally involves committee review, payment to investor and booking of the loss.
The Repurchase Portal improves the effectiveness of decisions by increasing the number of successful appeals. It also increases the efficiency of the department through automating routine operations, leveraging skills, enforcing rules, and reducing departmental costs.
Visionet’s Repurchase Portal brings efficiency, value, and organize communication within various departments in a uniform and a centralized manner.
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Dooney & Bourke
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VP, Application Development