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Created on Thursday, 12 January 2012 08:36

Know Who Owns Your Mortgage

What often happens is that; a person sees a nice home, he or she is interested in, up for sale. The person finds out more about the property including the selling price. After which the individual needs to raise enough money to be able to purchase the home.

There used to be a time where people who wanted to purchase homes could just walk up to a bank or any financial institution and if the institution has the means, it will grant the borrower the home loan.

These days, things seem to have changed a lot. This change has also made it much easier for borrowers to obtain mortgages. With the right financial conditions, a borrower can just walk up to a mortgage company of his or her choice and then come out with a huge sum of money for the purchase of a home.

Compared to the days preceding the housing downfall, it is even more difficult to obtain a mortgage today but even with this difficulty, obtaining a home loan now is far better than in the olden days. During the days of the housing sector boom, it was very easy to acquire a home loan. In fact it was so easy that very few of us stopped for a second to think about how mortgage companies were able to finance the huge home loans we took.

There are several thousands of mortgages that are currently in operation in the US but the vast majority of these mortgages are financed by three government backed institutions. You may have heard of the Federal National Mortgage Association commonly known as Fannie Mae or its counterpart the Federal Home Loan Mortgage Corporation also referred to as Freddie Mac. These two institutions together with a third known as the Government National Mortgage Association (Ginnie Mae) make available to mortgage servicers the funds needed to finance the home loan requests of borrowers.

Before the financial meltdown, Fannie Mae and Freddie Mac were two private mortgage institutions but after the mortgage sector was struck by the financial crisis, government had no other choice than to intervene and save both institutions from total collapse. What necessitated this action was the fact that allowing these two institutions to fail would have had a catastrophic effect on the US mortgage industry.

But how come these institutions became so powerful that government had to feel they were too big to be allowed to fall? The answer is very simple. Fannie Mae and Freddie Mac run a business of acquiring mortgages from smaller mortgage providers.

Borrowers who need home loans approach mortgage servicers for these loans. The servicer’s job includes assessing the borrower’s financial status, processing the loan documents and then granting the loan amount. But as a borrower, do not think that your loan stays with that mortgage servicer. This is because as quickly as the servicer processed the loan for you, the servicer will then repackage the loan along with countless others and then sell them to one of the above mentioned institutions.

With the money obtained from the sale of those loans, the servicer can go ahead to grant more home loans, manage its operational expenses and then record profits.

After buying the home loans, Fannie Mae, Freddie Mac or Ginnie Mae then contracts the mortgage provider to act as a servicer on its behalf. In this vain, your mortgage servicer only sees to the smooth running of the loan, collecting your monthly payments on behalf of the actual owner in return for a small fee.

This is why for most homeowners, when they were struck by financial difficulties, their mortgage servicers could not independently offer mitigating measures. It is because the servicer does not own the loan and so does not hold the right to initiate any process without the prior approval of the mortgage owner.