If too many mortgages default, the MBS can lose significant value. Lenders aim to include reliable mortgages in their securities and have technology to assess credit risk, detect fraud, and monitor performance in order to avoid forced buybacks or losses for investors that diminish market confidence.
Emerging technologies are proving essential to reducing repurchase risk and improving confidence in mortgages sold on secondary markets, enhancing transparency and security of loan data transfer to minimize errors. For example, automated underwriting powered by artificial intelligence (AI) and machine learning allows lenders to more accurately assess risk and detect potential fraud during the application process, leading to higher-quality loans less likely to default.
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