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In Response To:
Thread Starter: Rocky P
Title: Re: you know its bad when...

Piggybacking on what John just mentioned, the correspondents are going to do a QC. It would be better if the lender understood what the problems were, changed the procedures to ensure that they did not re-occur and provided training.

The fact that a correspondent buys a loan does not mean that they have full confidence in the bank and that the loan is theirs forever and ever. Through the representations and warranties that your bank issued, if there is a problem, the correspondent can force the bank to buy the loan back and charge the bank for doing it. If there are significant problems or issues, they may do a 100% validation of everything the bank sold to them.

Banks sell in the secondary market mainly for liquidity. If (for example) Citi, Chase, etc. viewed the purchased loans as a higher risk, the bank could be forced into buying every one back that is not 100% accurate - any reason. Additionally, if they did not cut the bank off, it may be reclassified to a higher risk rating (e.g. dropping from a platinum to a gold or gold to silver rating), with a corresponding change in the pricing to reflect the risks.

It's all about the quality of the product the bank sells, and the pride of management in getting it right.