If you're still writing mortgage payment checks to the original lender, you might assume that the lender has held onto your mortgage. But, in fact, the original lender may have sold your mortgage, and if so, it has likely been securitized. Recent regulations require lenders to tell inquiring homeowners basic facts about mortgage ownership.
After you take out a mortgage, the lender decides whether to keep the loan or sell it to somebody else. Even if sold, the original lender might keep the mortgage servicing rights to itself. These rights allow a servicer to bill your mortgage, keep payment records and collect a fee. Conversely, your original lender may keep the mortgage but sell the servicing rights. If you get a notice to send your mortgage payments to a new place, it might mean that someone has bought the loan, but may only indicate that someone has bought the rights.
Securitization occurs when an agency or private company groups hundreds or thousands of similar mortgages together into pools and then sell securities backed by the pools. When this occurs, the mortgage check you write each month puts money into a pool, which then gets paid out to investors who buy the mortgage-backed securities. If your original lender sells off your loan, chances are it’s been purchased by one of the federal agencies that buy and securitize mortgages. These agencies include Freddie Mac, Fannie Mae and Ginnie Mae. Together, the agencies help originate or buy about two-thirds of new home mortgages. Agency websites offer search facilities to find out whether they own your mortgage.
Your Right to Know
The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 gives your the right to find out who owns mortgage. When your lender sells your mortgage, it must send you a “goodbye” letter and the new owner must write you a “hello” letter. These letters explain who now owns your mortgage. In addition, your mortgage servicer -- the company you write your monthly checks to -- must answer your written question within 10 days under rules set down by the U.S. Bureau of Consumer Financial Protection. If one of the federal agencies bought your mortgage, then it’s a sure bet it's been securitized. If it's owned by some other company, you can contact it and ask to know whether your mortgage has been securitized.
Mortgages greater than $417,000 (as of June 2013) are known as jumbos, and federal agencies cannot securitize these. But some private organizations do securitize jumbo mortgages, so it’s possible your loan has been converted into securities even if it’s a jumbo. It’s also possible that your loan records are jumbled and will take some time to untangle. In some cases, you might have to go to court to figure out who owns the mortgage-backed securities on your loan. This is especially important if you are facing foreclosure, because the lender must prove ownership before foreclosing on your home.
- Detroit News: Big Banks Sell Off Mortgage Servicing Rights
- Chicago Tribune: Fannie, Freddie Form New Mortgage Securitization Firm
- Urban Digs: How Mortgage Backed Securities Work
- Realtor.com: Know Your Rights if Your Loan is Sold
- Bureau of Consumer Financial Protection: 2012 Real Estate Settlement Procedures Act (Regulation X) Mortgage Servicing Proposal
- CNBC: Jumbo Mortgage Divide Starts Shrinking
- BillsBills.com: Mortgage Packaging and Reselling Has Led to Confusion Over Mortgage Ownership
Based in Greenville SC, Eric Bank has been writing business-related articles since 1985. He holds an M.B.A. from New York University and an M.S. in finance from DePaul University. You can see samples of his work at ericbank.com.