In late 2006, several of our mortgage loan originator clients began to notice an uptick in the volume of “repurchase” demands being made by the entities to which they had sold loans in prior years – primarily the major banks and the Government-Sponsored Entities (GSEs), including Fannie Mae and Freddie Mac. Our clients were stunned by what they viewed as a sudden about-face by the loan purchasers. These clients had dutifully originated the loans by following criteria created and developed by the big banks and Wall Street. Those criteria often specifically called for loose, reduced documentation requirements and an absence of verification of certain borrower information. When this inevitably led to the foreclosure crisis in America, the big banks and GSEs acted as if the originators were somehow “guarantors” of the accuracy of all information provided by the borrowers – even in categories that the originators were not even permitted to verify.
The uptick in repurchase demands turned into an avalanche by late 2008 and 2009. Loan aggregators (the big banks and the GSEs) seemingly wanted the world to believe that every originator that had sold them loans in previous years had somehow “misled” them about the quality of those loans. Trustees and receivers acting on behalf of failed lending institutions took the same approach, blaming the originators, rather than recognizing originators had been supplying the products the failed lenders had wanted. They simply followed the lenders’ own rules and requirements for those products.
Early on, as the Bilzin Sumberg Repurchase Team reviewed “repurchase” and “make-whole” demands received by our clients – demands related to such high risk products as stated income loans (a/k/a “liar loans”), and no income/no asset (NINA) loans – we recognized two fundamental truths:
big banks were trying to revise history at the expense of loan originators; and
the wave of demands of this sort was only going to increase.
We also knew, as partners of one of the few major law firms that generally declined to represent the big banks (for business reasons), Bilzin Sumberg was uniquely positioned to help originators without incapacitating conflicts. We also realized that the best team to handle the flood of impending “repurchase” demands would be a combination of transactional and litigation lawyers.
Since then, we have developed our expertise in helping companies defend against mortgage repurchase demands. We have done so loan by loan, document by document. We have developed what clients and opponents alike recognize is an unparalleled knowledge base related to repurchase issues – from “loan level” issues to how securitization and failed bank agreements may affect an originator’s obligations when confronted with a repurchase demand.
We handle major repurchase litigation matters literally coast to coast for originators, both large and small. We do so with a focus not only on litigation success, but also on cost-efficiency for our clients. We pride ourselves on taking a business approach to resolving all “repurchase” matters, without litigation when it can reasonably be avoided. Because we understand the pertinent legal and business issues inside and out, we often are able to help our clients avoid litigation altogether, or resolve a filed lawsuit on favorable terms.
We have more than 45 years of combined experience as the two partners leading the Bilzin Sumberg Repurchase Team. In addition, we have lawyers from our Commercial Finance, Corporate and Litigation Groups with substantial hands-on experience handling these matters. Our Team is in a unique position to provide useful assistance and insight into matters of importance to the financial services and housing industries. Our goal for this blog is to address the business dynamics and legal issues that have the potential to empower local and regional banks and mortgage origination companies to resist and overcome the continued onslaught of loan repurchase and make-whole demands.