Rick Soukoulis, the CEO of LoanCity Inc. in San Jose, said that the industry is still learning to manage the conflicts between trading partners that arise from early-payment defaults.

LoanCity revised its practices in this area in August, he said. "As soon as we get an EPD [buyback] request, we notify an account executive, contact the borrower directly, get all the servicing information, and work with our brokers to get the borrower a new mortgage that is proper to their payment habits, and then we work with our buy side to go through each request. "If there’s really a problem, we indemnify or make it whole. … You have to push it back to the broker, because the broker values his relationship with us," Mr. Soukoulis said

Buybacks could be "an existential threat" for some lenders that do not have big balance sheets, Mr. Poulos said. "If you have to buy back even 5% of your pool, that’s a tremendous amount of capital," he said. "It would hurt a lot if you had to sell it at 90 cents on the dollar. But if you have to sell it at 75 cents on the dollar … that’s a tremendous amount of pain."

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