In finance, a repurchase request, often called a “put-back,” occurs when an investor requires a lender to repurchase a loan that does not comply with original representations and warranties. This mechanism protects investors by enabling them to return loans containing significant defects, such as fraudulent information or underwriting errors.
When lenders originate loans, they often sell them to investors like government-backed entities (e.g., Fannie Mae, Freddie Mac) or private firms that package loans into mortgage-backed securities. These loans come with guarantees that the information provided was accurate and the underwriting met legal and policy standards.
A repurchase request is typically triggered when an investor detects material issues—commonly after an early borrower default. The investor reviews the loan documents, identifying breaches such as income inflation, undisclosed debts, appraisal overvaluation, occupancy misrepresentation, or missing signatures. Upon confirming a breach, the investor formally demands the lender repurchase the loan at its unpaid principal balance plus associated costs.
For lenders, repurchases represent significant financial losses and act as a deterrent against approving high-risk or non-compliant loans. Borrowers indirectly benefit, as the process encourages lenders to conduct thorough underwriting and comply with consumer protection rules.
The repurchase process played a critical role in addressing abuses that contributed to the 2008 financial crisis. Today, it remains essential in maintaining the stability and trustworthiness of the lending and secondary loan markets.
For those interested in related concepts, visit our glossary entry on Loan Auditing Procedures, which explains how lenders and investors evaluate loan files for compliance and risk.
Common Triggers for Repurchase Requests Include:
- Income misrepresentation or falsification
- Undisclosed liabilities affecting debt-to-income ratios
- Inflated property appraisals
- Fraudulent occupancy claims
- Missing or fraudulent documentation
- Violations of regulatory or investor-specific standards
Frequently Asked Questions
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Is a repurchase request the same as foreclosure?
No. Foreclosure is a legal process to recover property due to nonpayment, whereas a repurchase request is a contractual demand between investors and lenders. -
Can borrowers initiate repurchase requests?
No. Only investors who purchase loans have the contractual right to request a repurchase.
For further authoritative detail, see the Freddie Mac Single-Family Seller/Servicer Guide on Lender Repurchases and the introductory explanation on Investopedia.