Most people mistakenly assume that the company to which they make their monthly mortgage payments to actually owns their loan. This is rarely the case. To understand why the recipient of your payment is unlikely to be the owners too let us define a few items and roles.
A mortgage note, otherwise known as a promissory note or real estate lien, is associated with mortgage loans. This document lays out specifics such as initial loan balance, interest rate, payment amount, payment due dates, and number of months to be paid.
Mortgage notes are similar to bonds in that they can be bought or sold and offer the investor, or the person or entity that purchased the note, a set stream of payments over the life of loan.
The Mortgage Owner
The entity that owns the mortgage note is the owner of the mortgage. More often than not the company to which a person makes their payment to is not the actual owner of the mortgage.
The Mortgage Servicer
The servicer is the entity that collects payments on behalf of the owner. Additionally, a servicer is responsible for a number of related items such as collecting past due payments owed to the mortgage owner (the holder of the mortgage note).
Why Knowing the Difference Matters
When Pursuing a New Loan
Often times when people are choosing a lender with whom to work, with they will inquire about whether the loan originating company will keep their loan. In reality, this is very rare. Even the largest banks in the U.S. sell their mortgage loans to outside organizations such as Fannie Mae. In 2012, an estimated 86% of all mortgages were backed (meaning insured or bought) by the government.
The important point is to know that your mortgage note as well as the mortgage servicing rights can and are often sold, regardless of the size of the institution who originated the loan. Regardless of whether your note is sold or not, the parameters of your note, such as the interest rate, cannot change! Other factors that are of more consequence, such as your comfortability with your mortgage loan originator or the speediness of your lender, should be considered.
When Considering a Refinance
A number of refinance programs were created in an effort to help those impacted by the housing crisis. For example, Fannie Mae and Freddie Mac offer the Home Affordable Refinance Program (HARP) which is currently in its second iteration. If you have a conventional loan it is very likely that Fannie or Freddie owns your loan even though you make your payment out to another entity.
Important Refinance Links
For information on how to find out who actually owns your loan and your rights you can go to HUD’s website: https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/ramh/res/rightsmtgesrvcr
Does Fannie Mae own your loan? Go here to find out: https://www.knowyouroptions.com/loanlookup
Does Freddie Mac own your loan? Go here to find out: https://ww3.freddiemac.com/corporate/
VA Refinance Program Details: https://benefits.va.gov/HOMELOANS/irrrl.asp
FHA Streamline Details: https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/buying/streamli
USDA Refinance Details: https://www.rurdev.usda.gov/hsf-refinance_pilot.html