“Who owns my mortgage?”
It’s a frequently asked question, and the reason is always the same: A change is needed. Someone is trying to refinance the mortgage, or is trying to save a house from foreclosure, among possible scenarios.
Finding the answer to this question has become extremely important to many homeowners, but especially those in financial trouble. The many programs designed to stem the record tide of foreclosures have different requirements, depending on where your mortgage ended up after you signed that huge stack of papers at settlement.
For example, if your mortgage is guaranteed by Freddie Mac or Fannie Mae or insured by the Federal Housing Administration and you are looking to modify the loan, you should check out the government’s Make Home Affordable Program or the Home Affordable Refinance Program.
If it isn’t, you might have an opportunity to modify your mortgage through your lender if it participates in the public-private Hope Now program.
Or, if Congress eventually passes a plan to refinance through the FHA those mortgages not guaranteed by Freddie or Fannie, as proposed in the State of the Union address by President Barack Obama, the resulting program could provide a solution.
No matter who owns your mortgage, the company that services it might change several times during the life of the loan. This is a normal process and should not affect the terms and conditions of your original agreement.
Nor should you be angry or offended if the loan is resold. If you pay your mortgage on time every month, you’re fine. It’s nothing personal; just business.
These days, very few mortgages are kept in portfolio by the originating lender. Loans are sold to the secondary mortgage market, where they are packaged as securities typically purchased by several investors.
The process is designed to quickly return the money to the lenders, at a profit, of course, so they can lend it to more homeowners.
“Mortgages are a commodity item nowadays, like eggs or lumber,” said Holden Lewis, a columnist with Bankrate.com. “They are graded at the source, then packaged and sold.”
“When the supermarket buys a truckload of eggs, the manager knows that all the eggs didn’t come from one farm, and that some of them already are cracked,” Lewis said. “But the manager has a pretty good notion of the value of a truckload of eggs.”
About 50 percent of U.S. mortgages are currently held by Fannie Mae and Freddie Mac, and about 30 percent are guaranteed by FHA.
Typically, Fannie and Freddie take single-family (one to four units) and multifamily mortgages and pool them into mortgage-backed securities. Some are backed by fixed-interest rates, others by adjustable rates.
Until recently, mortgage-backed securities were prized by investors because of borrowers’ historically low default rates. In addition, large pools meant that the risks were spread widely.
One the reasons given for the excesses of the housing boom was that the default of loans given to risky borrowers would be lost in a pool of “good” loans. There were just too many “bad” loans made to allow that to happen.
Investors, or groups of them, that buy Fannie and Freddie mortgage-backed securities receive a guarantee that “we will supplement amounts received by the trust as required to permit timely payment of principal and interest,” according to Fannie Mae.
In addition, the more loans that are made, sold and packaged, the lower the risk and the cost of borrowing.
The lender can service the mortgage—collect and process your monthly payments—or sell the servicing rights to another, who is paid a percentage of the interest payment as compensation.
The servicer is the mortgage company handling the day-to-day tasks associated with managing your loan.
The difference for borrowers is this: If the lender is also the loan servicer, any decision on changes to the mortgage can be made directly. The servicer of another’s loan must get the originating lender’s approval first.
The easiest way for a borrower to determine ownership of a mortgage is to contact the servicer to see if it and the lender are the same.
To find out whether a mortgage is guaranteed by Fannie Mae or Freddie Mac— the key to some modification and refinancing programs—go to the place on their websites providing that information.
Fannie Mae’s is http://www.fanniemae.com/loanlookup/. Freddie Mac’s is http://www.freddiemac.com/avoidforeclosure/—under “Tools and Resources,” click on “Loan Lookup.”
Then there’s something called MERS, the Mortgage Electronic Registration Systems, which tracks the identity of servicers that registered loans on its system. For more information, go to http://www.mersinc.org/homeowners/.