General Mortgage Knowledge · 20% of the SAFE exammedium
Correct answer: The investor can demand a "repurchase" — forcing the originator to buy the loan back
Representations and warranties (reps and warrants) are the originator's contractual guarantees that the loan meets investor standards — proper underwriting, accurate documentation, verified income, adequate collateral. If a rep is breached (e.g., income was misrepresented, appraisal was inflated), the investor can issue a REPURCHASE DEMAND, forcing the originator to buy the loan back at par. This repurchase risk is why quality underwriting matters — sloppy origination creates future buyback liability that can threaten a lender's financial stability.
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