General Mortgage Knowledge · 20% of the SAFE exammedium
Correct answer: If a sold loan defaults and the investor discovers underwriting defects, the originator must buy it back — creating significant financial liability
Repurchase risk is very real and was a major factor in the 2008 financial crisis. When loans sold to investors go bad and defects are found (fraud, misrepresented income, inadequate documentation, inflated appraisals), the investor forces the originator to repurchase the loan. This can cost the lender the full principal balance of the defaulted loan. This is why lenders maintain strict underwriting standards — every shortcut in origination creates potential buyback exposure that could surface years later when the loan defaults.
CRAM ARCADE has the full NMLS question bank, timed practice exams, focus drills on your weakest category, flashcards and spaced repetition. No credit card.
Start studying free