Question: My employer (a lender) is required to repurchase a loan from an investor due to fraud. Is my employer required to repurchase the loan even if the loan was previously modified by the investor thereby permanently reducing the borrower’s interest rate from 5.5% to 3%?
Answer:
It depends on the terms of the loan purchase agreement executed between the lender and its investor. The terms and conditions that control the purchase of a loan are customarily set forth in a Loan Purchase Agreement (LPA) executed by the parties. The LPA would set forth the specific obligations of the parties with respect to the repurchase of a loan.
A lender seeking to be relieved from a repurchase obligation on account of a loan modification would need to include specific language in the LPA detailing the excluded liability. While a lender may believe it is unfair to be compelled to repurchase a modified loan, only the LPA can relieve the lender of such liability following loan modification.
