Wholesale Channel Exit Under Repurchase and Concentration Risk

The 40 bps difference between 185 bps gain-on-sale and 145 bps cost to originate is not a risk-adjusted return. The committee should allocate corporate overhead, capital, liquidity, and expected repurchase losses to the channel. Repurchase requests are rising 18% and are concentrated in two sellers, so a small number of loans can erase the apparent margin. The seller under state examination creates regulatory and counterparty risk that may not be priced into the current cost. The committee should also examine fixed versus avoidable costs: if wholesale uses the same underwriting, compliance, and technology platforms as retail, exiting may strand costs rather than remove them. On the qualitative side, wholesale may provide geographic diversification and volume that supports servicing scale; exiting could reduce bargaining power with investors and increase cyclicality. The committee should request vintage-level repurchase and cure data, seller-level profitability, pull-through, early payment default rates, MSR hedging costs, and stranded-cost estimates. The decision should compare exit net present value with a remediation scenario, not just the current gain-on-sale margin.

The first 30 days should stabilize risk rather than announce an exit. Impose immediate volume caps and tighter eligibility on the two concentrated sellers; suspend new commitments from the seller under examination pending legal and quality-control review; increase pre-funding and post-closing audit sampling; and freeze any change to seller approvals. In parallel, build a seller-level profitability and repurchase model that separates known losses, incurred but not reported losses, and contingent exposure. Days 30 to 60 should produce two board-ready scenarios: a managed exit with wind-down costs, employee retention, investor notifications, and servicing transfer implications; and a remediation plan with counterparty limits, repurchase reserves, and pricing changes. Days 60 to 90 should set decision gates, not automatic closure. Legal should review contractual notice periods and agency approvals. Communications should remain internal until the board decides. This sequencing avoids destroying franchise value before the bank knows whether the losses are concentrated and fixable, while protecting capital if they are not.

The bank should treat the two sellers as critical counterparties, not ordinary correspondents. Controls should include minimum net-worth and liquidity covenants, seller-level concentration limits that decline over time, and a repurchase reserve or holdback tied to historical and expected losses. Quality control should sample each seller's loans before purchase and after closing, with early payment default triggers that automatically suspend eligibility. The bank should require expanded representations and warranties, indemnification, and cooperation obligations, and should review the sellers' own underwriting and compliance policies. The seller under examination should face a temporary suspension or enhanced pre-funding review until the examination is resolved. The bank should also monitor the sellers' investor repurchase trends, license status, and financial statements, and require notification of material litigation or regulatory actions. Internally, the bank should report seller-level profitability net of repurchase losses to the credit and risk committees and test the plan against a stress scenario in which both sellers fail simultaneously. These controls preserve the channel while making the concentration risk visible and bounded.