Mortgage Loan Repurchase & Indemnity OverviewIn an effort to offer more loan products and remain competitive in today's expanded marketplace both the bank and mortgage brokers participate in correspondent or wholesale lending programs. Correspondent and wholesale lenders refer to the banks and mortgage brokers that sell them loans by many names - Originators, Brokers, Lenders, Sellers or Correspondents. For the purpose of this article the banks and mortgage companies that originate the loans are "Sellers" and the correspondent or wholesale lenders that fund or buy the loan from the seller are "Investors".
In some instances, which are outlined in a seller agreement between the seller and the investor, a seller may be required to repurchase or indemnify a loan that it has sold to an investor. For the purposes of this article the following repurchase and indemnity definitions are provided:
- Repurchase - The investor requests due to a defect in the mortgage loan, as outlined in the seller agreement, that the seller repurchase the loan and reimburse any incentives paid to the seller.
- Indemnity - The investor requests due to a defect in the mortgage loan, as outlined in the seller agreement, that the seller provide an insurance policy to protect the investor in the event of loan default. This insurance policy is commonly referred to as an indemnification or indemnity. Smaller seller organizations will typically chose to pay for an indemnification in lieu of repurchasing the loan from the investor.
- The loan has one or more Early Payment Defaults (EPD).
- A Quality Control (QC) review of the loan reveals a defect that requires the loan to be repurchased or indemnified.
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