Borrowers interested in obtaining a mortgage loan modification should start with their either their lender or loan servicer.
The servicer, if different from the lender, is the company that processes mortgage payments. It also takes care of other loan-associated tasks such as dispersing escrowed tax and insurance payments to county governments and insurance companies. Their telephone number can be found on the mortgage statement that arrives each month.
The servicer, or more specifically, the loss mitigation department of the servicing company, can tell a borrower if the servicer has been empowered to act on behalf of the lender in a loan modification, if the lender and servicer are not one and the same.
Determining who actually owns the mortgage is a more involved question. To understand more about this, it is helpful to understand what happens to a mortgage once the borrower leaves the closing table.
What are Fannie Mae and Freddie Mac and what do they do?
One of two things can happen when a borrower takes out a mortgage. The first thing is that the lender who issued the loan can hold onto the mortgage in what is called a mortgage portfolio. The lender may sell the servicing rights, but will still own the mortgage itself. In this case, it is said that the lender will hold the note.
More likely though, the original lender will sell the mortgage to Fannie Mae (or Freddie Mac), who will in turn sell it to investors. The process from beginning to end goes something like this:
Fannie and Freddie are what as known as Government Sponsored Entities, or GSEs. They work with both financial investors looking to buy large pools of mortgages, and lenders that are looking for investors to whom they can sell mortgages. These mortgages are the ones that they provide to their customers.
Basically, Fannie Mae and Freddie Mac take money from the investors. They then in turn and supply it to the lenders, who have customers that need mortgages.
Once the borrower closes on their mortgage, the loan is sold to Fannie Mae or Freddie Mac. That mortgage then gets packaged together with perhaps thousands of other mortgages into what is known as a Mortgage Backed Securities or MBS. The MBS are then sold to investors, which provides additional capital for making more loans and the cycle starts all over again.
So who now owns my mortgage and how do I find them?
If the servicer is either unaware of who the owner is, or is unable to reveal that information to the borrower, per the request of the owner, other means of locating them will need to be used. Borrowers can determine if either Fannie or Freddie Mac own their mortgages by visiting the following website and typing in a few pieces of information.
There are other ways, such as a system, if the borrower has access to it, called MERS, which stands for the Mortgage Electronic Registration System. It is a registry for most mortgages, but may only show either the original mortgage company, or the name of the servicer.
If all other options are exhausted, borrowers should seek the counsel of an attorney that works with loan modifications and can find the correct entity with which to deal.
Some Securitized Mortgages are Not Eligible
As the tide of foreclosures began to surge, and properties held their values, it was more profitable for lenders to let the properties go into foreclosure, and be sold than it was to put a loan modification in place.
Lenders may have told the servicers, and ultimately the borrowers looking for modifications that they (the lender) were contractually obligated to their investors to keep the original terms of the loan in place.
The expectation of the lenders was that the real estate market would turn around, and values would start to increase. The lenders would then be able to sell the properties at a profit.
But with the continuous decline in the real estate market combined with the increasing numbers of foreclosures, lenders are rethinking this policy, as the mortgage backed securities are collapsing from within.
Some investors have put clauses on the securities that the mortgages within them are un-modifiable, but the majority of them are.
Federal regulators are also working with lenders and investors, working from the perspective that successful loan modifications are more beneficial to borrowers, lenders and the economy as a whole than foreclosures are. Making Home Affordable has provisions to give lenders financial incentives to make loan modifications, and that may spread to other programs as well.