Study reveals appraisal and income-related issues as two of the top three drivers of loan repurchases
BOSTON, MA / ACCESSWIRE / December 5, 2024 / Reggora, a leading appraisal management software company, today announced the findings of new research conducted in partnership with STRATMOR Group. The study highlights that the average mortgage loan repurchase rate over the last 18 months (April 2023 to October 2024) is 0.49%, with each repurchase costing lenders an average of $32,288. Appraisal and income-related issues are identified as two of the top three causes of repurchases, collectively responsible for 57% of cases.
The findings also reveal that independent mortgage lenders face a disproportionate challenge, experiencing 26% more repurchases on average compared to depository institutions.
The study delves into the specific underwriting issues that lead to repurchases, focusing on appraisal and income-related defects. Among the most common income-related issues are:
Misrepresentation or miscalculation of borrower income:
Discrepancies such as overstating earnings, failing to verify self-employment income, or improperly documenting secondary income sources often emerge during post-approval audits, leading to non-compliance with underwriting standards.Failure to meet debt-to-income (DTI) requirements:
Errors in accounting for liabilities or improperly calculating income can result in understated DTI ratios. If later reviews reveal a borrower’s DTI exceeds program thresholds, lenders may face repurchase demands.Income documentation errors or omissions:
Missing or incomplete documentation-or reliance on unverifiable income sources-violates loan eligibility requirements and often results in buyback demands during post-closing reviews.
The study also examines the financial impact of loan repurchases, including defect fees, loan-level price adjustments (LLPAs), and underwriting costs associated with mitigating these risks. Findings are segmented by lender type (independent vs. depository) and loan characteristics, such as Collateral Underwriter® (CU) and Loan Collateral Advisor (LCA) scores.
“Loan repurchases are a persistent challenge for lenders, often carrying significant financial and operational consequences,” said Brian Zitin, CEO of Reggora. “This study goes beyond just highlighting the problem-it pinpoints the most common issues, like income-related errors, and gives lenders clear insights into where they can make underwriting adjustments to reduce risk and improve loan quality.”
“Appraisal costs, whether directly related to repurchases or to the review process, continue to be one of the few unexamined and unexploited areas of cost savings for lenders,” said Mike Seminari, STRATMOR Group’s Director of Customer Experience. “This study brings to light an opportunity for lenders to seek ways to limit repurchase losses and seek alternate, cost-saving review methods.”
The full study results will be presented in a webinar hosted by Reggora and STRATMOR Group on December 12, 2024, at 11 a.m. PST / 2 p.m. EST. Mortgage lenders are encouraged to register here.
Lenders can also schedule a one-on-one consultation with Reggora’s mortgage solutions team for a personalized review of the data. During the session, Reggora’s team will share the complete study, compare your organization’s performance to industry averages, and project potential cost savings enabled by its appraisal review warranty.
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Source: Reggora
