What is a mortgage putback and how does it work?

On Behalf of | Nov 22, 2021 | White Collar Crimes

Many New York City residents seek a mortgage when buying a new home. Unfortunately, mortgage fraud sometimes occurs. This is where a mortgage putback comes in. You should know what this means if you’re seeking a mortgage to buy a house.

What is a mortgage putback?

Mortgage putbacks can be dated back to the economic crisis of 2008 when the real estate market crashed. Once a mortgage is finished, the lender may sell that mortgage to a different investor. Depending on the circumstances, however, there may be questions about New York mortgage fraud and the mortgage might need to be investigated. In that situation, the original lender may have no choice but to buy the mortgage back from the person currently holding it. That is known as a mortgage putback.

Why do mortgage putbacks matter?

A mortgage putback exists to protect investors who buy repackaged mortgages against potential mortgage fraud in New York. Sometimes, the lender might make a legitimate mistake and might unknowingly be the victim of fraud by borrowers. Other times, the lender might be engaging in mortgage fraud themselves for their own personal gain. When an investor finds evidence of potential fraud, a mortgage putback can protect them and they could force the original lender to buy the mortgage back from them.

During the 2008 financial crisis, which negatively impacted the real estate market, people struggled and there were more instances of mortgage fraud as a result. Mortgage putbacks emerged due to fraud or the lack of due diligence by the original owners of mortgages. When mortgages were sold to investors and payments were defaulted, questions arose and the investors looked for answers from the original borrowers.

If mortgage fraud occurs, a putback can result in serious consequences for all parties involved. The investor may have no choice but to force the original borrower to buy back the mortgage. This can put the original borrower in financial jeopardy as well.