What is the maximum time frame a mortgage lender can wait after loan origination before it has to buy back a defaulted loan?

The correct answer is that the maximum time frame a mortgage lender can wait after loan origination before it must buy back a defaulted loan is 12 months. This time frame is established to ensure that lenders take responsibility for the loans they originate and sell into the secondary market, providing a protective measure for investors who purchase those loans. Under most standard agreements, if a borrower defaults within this period, the lender is typically required to repurchase the loan from the investor, thus giving accountability to the lending entity for their underwriting practices. This requirement encourages lenders to carefully evaluate borrowers' creditworthiness and the risk associated with the loans they issue.

In context, the other options represent either too short a window, such as 0 months, which would eliminate any accountability after origination, or too long a timeline, such as 24 months, which would delay the lender's responsibility for a longer period than typically acceptable in the market. Therefore, the 12-month period strikes a balance between providing a safety net for investors and ensuring due diligence among lenders.