Who owns your mortgage? Probably not your bank!

Posted on 02. Jun, 2017 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Who owns your mortgage?  And Why does a Short Sale Take So Long?

Many homeowners I speak with do not understand how the mortgage industry works and the players involved.  So let's talk about it.

Let's start with a typical mortgage origination scenario.

1. A Home-buyer goes to ABC Bank and applies for a mortgage. For this example, let's say it is a conventional mortgage.

2. ABC bank is a large, regional or national bank.  They underwrite that loan so that it meets Fannie Mae or Freddie Mac standards. This makes it possible for them to sell the loan to Fannie Mae, Freddie Mac or some other Secondary Market Investor, after the loan is originated.

3. The loan is approved and closes.  ABC Bank takes their own money, or money they have borrowed, and lends it to the Home-buyer.  They charge him an Origination fee for creating the mortgage.

4. ABC Bank then turns around and sells that loan to a Secondary Market Investor, and hopes to keep the Servicing Rights.  That means, they still send the new Borrower their monthly bill and collect the payments, etc.  For this, they get paid a monthly servicing fee.

But now ABC Bank has that money back that they loaned out.  So they are able to do this same activity over and over and over collecting more and more Origination Fees and Servicing Fees.  This is how most Mortgage Companies make money on mortgages.

So now the loan is seriviced by ABC Bank, but even though they originated it, they no longer own it.  The new owner of that loan is called The Investor.  If that loan needed mortgage insurance, there is also a Mortgage Insurer involved with that mortgage.

So this leads me to the following question that I get all the time... "Why do the banks take so long to review a short sale and make a decision?  Don't they want to get this resolved asap?" The answer is that they don't necessarily want it to be resolved asap.  That is because there is a conflict of interests between the Servicer and the Investor.  The Investor is the one losing the money, and possibly the Mortgage Insurer.  So they have an interest in potentially resolving a delinquent loan sooner rather than later.  But the Mortgage Servicer is being PAID every month to service that loan.  Once that loan is closed out, that income will stop.  So the Servicer does not have an incentive to make the process fast and efficient.  So long as the Investor on the loan is not unhappy with their current timelines and servicing of the loan, then the bank has no incentive to spend money to better train their staff, streamline the process, or hire more staff to handle to volume of files they have to review.  So nothing changes for the better, even so many years after the initial downturn that caused the real estate crisis to start.

Sean Wilder

Loss Mit Services