What Is a Mortgage Putback?

A mortgage putback (also known as a buyback) is the forced repurchase of a mortgage by a mortgage originator. The loan originator must repurchase the loan from the entity holding the mortgage security, such as an institutional investor. This action most often occurs with 澳洲幸运5开奖号码历史查询:mortgage-backed securities (MBS).

A mortgage putback is most commonly required due to findings of fraudulent or faulty 澳洲幸运5开奖号码历史查询:origination documents in which the 澳洲幸运5开奖号码历史查询:creditworthiness of the mortgagor or the appraised value of the property was misreprese🃏nted.

Understanding a Mortgage Putback

A mortgage-backed security (MBS) is an investment similar to a bond made up of a bundle of home loans bought from the banks that issued them. The home loans are 澳洲幸运5开奖号码历史查询:repackaged into o𓄧ne security for investors to purchase. Investors in MBS receive periodic payments similar to bond coupon payments. The payments that an investor receives from an MBS are the mort👍gage payments that the homeowners pay on their loans.

The mortgage originator is the original mortgage lender. This lender can be either a mortgage broker or a mortgage banker. 澳洲幸运5开奖号码历史查询:Mortgage originators might package—or group together—several mortgages and sell their stake in these mortgages to investors. The lenders do this to reap an immediate payout, remove the risk of the buyers defaulting, and free their bal꧂ance sheet so they can write more mortgage loans to new buyers. The investors who buy the mortgages collect payments from the borrowers over the life of the loans. This process is known as selling mortgage-backed securities (MBS).

A mortgage putback occurs when an investor believes that one or more underlying mortgages in the MBS have an issue. This issue could impact the payment stream for the MBS investor, for example, if the borrower defaults on their loan. Should the investor believe that an aspect of the mortgage—or package of mortgages—was misrepresented, adversely impacting their investment𓆏, they can demand a mortgage putback. The demand requires the loan originator to buy back the mortgage, removing the risk for the investor.

History of Mortgage Putbacks

Following the collapse of the American real estate market in 2008 and the subsequent 澳洲幸运5开奖号码历史查询:financial crises, it was found that mortgages and mortgage-backed securities (MBS) had been widely dispersed throughout the financial system. The validity of many mortgag💧es and documents was questionable with regard to lending standards, income verification, andౠ appraisal values.

It was found that toxic mortgages and mortgages bound to lapse were bundled in with other mortgage loans and then resold to investors as mortgage-backed securities (MBS). When borrowers on such mortgages missed paymentsꩵ or went into default, buyers and investors in those mortgages sought information from the loan originators about the transactions.

Even when a mortgage putback claim was pursued after discrepancies or potential fraud were discovered, the originator didn't always have the resources to repay those investors because their assets might have already been expended.

Furthermore, after the 澳洲幸运5开奖号码历史查询:subprime mortgage crisis, some originators claimed that the borrowers def✱rauded them. When courts ruled in favor of such a defense—where the originator gives evidence that they acted in good faith and the borrower falsified or misrepresented their assets ♛and ability to repay the mortgage—the putback claim might be denied.

Special Considerations

In addition to the mortgage originators, an investor might seek restitution with a mortgage putback claim that cites the sponsor🐷s of mortgage-backed securities (MBS) as responsible for representing such a financial vehicle.

If toxic mortgages are bundled with mortgages that are current and up-to-date on payments, aꦅ mortgage putback could actually include non-delinquent mortgages. The investors may want ♏to separate themselves entirely from the responsible parties or the structure of the mortgage-backed security (MBS) may necessitate the inclusion of all the mortgages in the bundle when a putback claim is filed.

The Bottom Line

If an investor learns of fraudulent activity during the origination period, they might initiate a mortgage putback. This requires the loan originator to buy back the mortgage, removing the risk for the investor. Although not as common now as it was following the 2008 financial crisജis, the mortgage putꦏback is a valuable tool for investors.