Question of the week: Who owns my mortgage?

Answer:  Not the lender who funded it when it closed probably.

This is a common question from many borrowers over the years and more so lately as we work with some clients for the “Making Home Affordable” refinances through Fannie Mae or Freddie Mac.  Who owns your mortgage?  Let’s take a look.

Ancient History

If you have a loan that funded before 2008 and was a non-conforming mortgage, either a “jumbo” or “sub-prime” or “portfolio” mortgage your loan ended up either with a brokerage house like Lehman Brothers or with the lender.  Most of the latter, loans that remained with the lender and were referred to as portfolio mortgages, were the Option ARM products with very low entry rates and potential negative amortization.

Almost all of those loans are out of the market, with a few exceptions for very high-balance products or other unique, or niche, mortgages offered by some credit unions or individual banks. 

Current History

With the collapse of the non-conforming mortgage markets that began in early 2007 almost all mortgage lending has become either Fannie Mae, Freddie Mac (i.e. conforming) or government (FHA or VA).  There are exceptions for those looking for mortgages over the conforming loan limits up to $729,750; which is the maximum loan limit for some areas of the country.  But the exceptions are more restrictive than Fannie/Freddie and generally higher rates.

Taking out the exceptions, the overwhelming majority of mortgages being funded across the country are either Fannie Mae, Freddie Mac or FHA loans following the guidelines set forth by one of those three agencies.  So who owns your mortgage?  Fannie Mae, Freddie Mac or Ginnie Mae most likely—these are known as GSEs or Government Sponsored Entities.

Government mortgages, FHA or VA, are not owned by the government, nor by the lender.  They are insured through the Federal Housing Administration or Veteran’s Administration, but almost all end up being owned by Ginnie Mae, Fannie and Freddie’s public servant sister.  Ginnie Mae operates almost identically to Fannie and Freddie.  It purchases large blocks of loans from lenders and then offers securities, bonds if you will, to the market. Investors buy the bonds, known as Mortgage Backed Securities (or MBS).  For their investment they receive returns of principal and interest as mortgage payments are made and mortgages pay-off.

For Fannie and Freddie the same process takes place.   They purchase mortgages in bulk from lenders, package them into lots and sell MBS in the market on those lots.  As mortgages pay, or default, the investors are compensated, or lose money if defaults, for their investment.  Money goes from investors to the GSE for the MBS, from the GSE to the lender to purchase the mortgages, from the lender to you the borrower to fund your home loan.

You make your payment to your lender, or a servicer if they sold the servicing rights, the lender/servicer retains a portion and sends the payment to the GSE, the GSE retains a portions and sends what is left onto the investor.

If you have a non-government mortgage funded in the past three years it most likely owned by Fannie Mae or Freddie Mac.  You may be paying the original lender or a new servicer every month, but your mortgage is owned by one of the conforming GSEs.

At the end of the day it matters not who owns your mortgage.  Once you sign the note and it funds the terms are locked unless you and the owner of the note agree to modify the terms.  If you make your payments on time and as agreed your loan could be owned by Fannie Mae, BofA, Charles A, or Uruguay—you are still only obligated to make payments per the terms of the note you signed.

To find out if your mortgage is owned by Fannie Mae or Freddie Mac check out the links below. 

Click here for Fannie Mae

Click here for Freddie Mac

Have a question for me?  Ask me!

Another wacky week for mortgage rates.  Monday and Tuesday looked promising with the MBS markets rebounding and appearing to be pulling out of the recent ditch.  Then Wednesday a teeny bit of positive economic news came out and investors blew the stock markets 2% higher and MBS and other bonds fell.  Fell fast and hard, with the MBS market opening up significantly down from Tuesday.  We started with a little rally on Thursday and lost all the gains.   This morning mortgages opened up great, higher than Wednesday’s open.  It appeared the losses from Wednesday and Thursday would be eviscerated.  Then through the day trading was sell, sell, sell.

For the week stocks did great. The Dow Jones was up 3% for the week and NASDAQ hit a 3 year high.  Despite employment news today showing unemployment increased in November—which should have been a strong “buy” signal for bonds and help rates—investors have shied from bonds since the Fed announced QE2.

Not coincidentally an interview taped for CBS for Sunday with Fed Chair Ben Bernanke has the Big Chief stating that QE3 may occur.  Yes, the Chairman of the Federal Reserve Board which purchased over $1.25 trillion in mortgages and bonds from 2009 into 2010 and is currently at the beginning of spending $600 billion in new money (literally) for more bonds between now and then of June 2011 is saying they may buy more.  When this news hit the street the bond dealers were in full sale mode.

“But if the Fed buys shouldn’t rates drop?”  Only if they are the only ones in the market and they are not.  The primary criticism of the Fed’s move has been that pouring extra money into the economy, new money not recirculating “old” money, creates inflationary pressure.  Which is what the Fed wants, more inflation.  However, argue the critics, when the economy begins its rebound and more robust growth the resulting inflation due to the Fed’s extra buying will be extremely difficult to control.  To do so will require much higher rates, and therefore lower bond prices. 

Investors are driving down bonds today based on predictions of prices in the future.  Instead of the Fed creating a bond bubble that could burst very badly in the future, it appears investors or poking some holes in the bubble to keep it from getting too overblown.

Collateral damage from the huge drop in bond prices in November, and now into December, have been states and municipalities using bond issues to raise money either to plug budget gaps (California and some others) or for funding new capital improvement projects.  Their costs are rising as investors pull out of bonds, and rising even further as the risk of those bonds become even greater as federal deficits rise and the political pendulum in Washington swings away from bailing out companies or other entities—like states and cities.

Overall some mixed economic news. With the ups and downs for the week the Friday to Friday have impacted the conforming and hi-balance rates the most.  High balance conforming jumped up above the others last week and FHA has been lagging as well.  Conventional rate at its highest mark since the week of July 9^th.

Bottoming out? For those sitting on the fence waiting for rates to bottom out you may have missed the timing by a few months as it appears first week of October.  Unless the Fed plan to push rates lower and keep them low begins to work.  If it is it better hurry.

Rates for December 3, 2010

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional                             4.375%             Up 0.125%

30 year conforming-jumbo                    4.625%             FLAT

30 year FHA                                         4.25%               FLAT

30 year FHA jumbo                              4.50%               Up 0.125%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Forget Black Friday, only now that we are in the first weekend of December can I shift into Christmas season mode.  Lights on the house and carols on the radio or music box are now okay by me!  Do you have a favorite carol that takes you back to your childhood?  Mine might be Bing Crosby’s version of “White Christmas” that I remember my Mom humming in the kitchen with snow outside.

Have a great week,

Dennis