As many mortgage lenders know, there has been an increase in lender repurchase demands and related litigation recently. This is likely because the statute of limitations is expiring for many of the loans that were originated or that defaulted during the housing meltdown, and because many of the large investigations into wrongdoing have been resolved through settlements with Federal and State regulatory Agencies.
For example, Citi Mortgage settled with Fannie Mae for $968 million to resolve allegations related to $3.7 million mortgages originated from 2000-2012, and $395 million paid to Freddie Mac from 2000-2012. Wells Fargo also paid $869 million to Freddie Mac and Chase paid $4 billion to FHFA.
As a first line of defense, it is always a recommended that a mortgage lender or broker maintain sufficient reserves to cover any possible losses resulting from repurchase liability.
Next, is to rely on the statute of limitations defense. The statute of limitations will vary based on the lender and the verbiage of the agreement with that lender. For example, in California, for Country Wide related loans, the statute of limitations is 4 years. In New York and Arizona, the statute of limitations is 6 years from the breach of a written agreement, in many cases.
An issue with the statute of limitations argument is when the statute begins to run. An originating lender’s argument may be that the statute runs from when the breach actually occurred, or when it was sold to the entity purchasing the loan and a counter-argument is that it is when the originating entity failed to pay the repurchase demand. Both have been successful in different state and federal courts and will be looked at on a case-by-case basis.
Another strategy is to argue what is known as unclean hands. This is where the party bringing a claim is found to have been in the wrong as it relates to the claim. For example, Bank of America admitted to wrongdoing in its settlement agreement with the Department of Justice, and a possible argument is that they should not be able to enforce a repurchase request of the loan was part of that settlement.
Finally, when a lender settled for pennies on the dollar, the damages were reduced and the lender should be required to show actual damages.