My Mortgage Was Sold?
By Elizabeth Dougherty
You finished closing on the property just a
month ago. You are still getting settled and have
not even fi nished putting away all the boxes.
Today in the mail you received a letter stating
that your mortgage has been SOLD. What is
going on?
The first thing you should know is that this
is not unusual and you are not alone. Selling and
buying “mortgages” and mortgage servicing
is HUGE business that encompasses everyone
from you, to mortgage brokers, banks, mortgage
lenders, Wall Street and the federal government.
What IS a Mortgage, Really?
Among the pile of documents you signed
at closing were the mortgage and a note. Most
homebuyers and many professionals refer to
them as a “mortgage” but they are actually two
separate agreements.
Mortgage law can be complex. American
Jurisprudence (2007) defi nes a mortgage in
certain jurisdictions as “…a vested fee simple
interest subject to complete defeasance by the
timely payment of the mortgage debt.”
Okay, but it may be easier to think of it like
this. The note is the IOU between you and the
company that is lending you money. The note
states that you agree to pay a certain amount at
a certain rate for a certain time period.
The mortgage is the document that states
you agree to use your house as “collateral” or
“security” for the note. Should you not comply
with the terms of the note, it is the mortgage
that allows the note “holder” to foreclose on the
property.
It is important to understand that it is not
necessarily the lender that has the right to foreclose,
but rather the current holder of the note.
“Notes” are very common fi nancial instruments
that can be bought, sold, traded, and
“’hypothecated”, or used as collateral. Your wallet
or purse probably contains “notes” (bills of
different dollar denominations) from the Federal
Reserve System.
Why Did My Lender Sell My Mortgage?
The easy answer is. “To make more
money.” Forty years ago, fi nancial institutions
would loan you money on your house (mortgage
and note), sit there and collect your monthly payments
for the life of the loan. Then the lenders
figured out if they could “sell” your mortgage
(for a profit) they could get more money to loan
to more customers and keep making more profits.
Sure beats waiting 30 years for the money.
Who Does What?
There are actually three entities involved:
The Mortgage Originator- This is the
“person” or company to whom you applied for
your mortgage and it could be a bank, broker
or lender. They are the ones that do all the
necessary work to get you your loan and get you
to the closing table so you can purchase your
house.
The Mortgage Servicer- This is the company
that collects your payments each month. They
can also be responsible for making sure the
property taxes are paid and the insurance is in
place. Mortgage service companies are usually
very large and make their money from handling
billions to trillions of dollars in loans.
The Mortgage Investor - These companies
or quasi-governmental agencies might purchase
your loan and thousands of others. They
“bundle” these loans together and use them as
collateral to sell “bonds” on Wall Street (hence
the term mortgage-backed security).
How Big is This Business?
Origination – As an example, Countrywide
Financial, according to their annual report, originated
$491 BILLION in mortgage business with
about 45% purchased from more than 2,100
banks and other mortgage bankers.
Servicing - Wells Fargo Home Mortgage
and Countrywide Financial currently lead the
pack with $1.34 TRILLION and $1.30 TRILLION,
respectively, of servicing businesses as of December,
2006 according to the National Mortgage
News.
Investors – All of this pales in comparison
to giant corporations like “Fannie Mae” that
make their money by simply buying thousands
and thousands of mortgages like yours and using
them to sell bonds on Wall Street. Fannie Mae’s
income in fi scal 2004 was just about FIVE BILLION
DOLLARS, an amount slightly higher than
the GNP of the Bahamas at $4.9 Billion.
What Does This Mean to You?
The terms of your mortgage will not
change when someone buys it. However there
are some VERY important rights that you have
when your Note is sold or your servicing is
transferred.
We will detail them for you in the next
HomeSeeker.
Elizabeth Dougherty, a resident of
Auburn, is a former Real Estate Broker
and Mortage Broker. She can be
reached at EADougherty1@aol.com.
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