Mortgage Servicer vs Investor: What’s the Difference?

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When it comes to owning a home, especially one that you’re considering selling through a short sale, it can sometimes be confusing to determine exactly who you need to get permission from.

In previous posts, we’ve explained how New Jersey short sales work, including the general timeline involved and what type of situations allow for short sales to occur. In NJ, homeowners who have experienced significant changes in their lives that have caused financial difficulties can ask their lender to approve a short sale. A short sale is essentially the sale of the home wherein the sale price does not cover the amount still owed by the mortgagee.

A question raised by many people attempting to apply for permission to move forward with a short sale is:

Who is my lender?

While this may seem like a silly question, in reality, it’s a very good one, and one that can be surprisingly hard to answer.

To those homeowners who are humming along, paying their mortgage just fine, it may seem that their lender is of course the company to whom they pay the mortgage bill every month.

Oftentimes, however, the lender who you originally borrowed money from in order to buy your house, sells your loan to a company known as an investor. If this happens, the investor then becomes the official loan owner.

Investors are the ones with the money, but they often don’t want to deal with the minutiae involved in collecting said money from the people. Therefore, the investors then hire a loan servicer to take care of sending out mortgage statements, taking payment, disbursing taxes and HOA payments, etc.

To get even more confusing, many times the investor hires the original lender to service the loan.

If you’re still confused, you’re not alone! The bottom line is that the company to whom you write a check every month for your mortgage may only be handling the paperwork for a bigger investment company that works in the background. If this is true, though, you’ll need to get your investor’s permission before moving forward with a short sale. They have the ultimate say in these types of decisions because they are the official note holder.

Sometimes lenders own and service loans simultaneously. These loans are known as portfolio loans. Basically, lenders need to keep some loans as part of their personal “investment portfolio” so they look good to the public, therefore attracting new customers. People who are approved for portfolio loans typically have very good to excellent credit, because lenders want to keep their overall loss-risk low.

Those borrowers who are granted a portfolio loan will have a much easier time communicating with their lender and will usually experience less trouble negotiating with them when changes to the mortgage are warranted.

If you do not have a portfolio loan, you’ll need to find out who owns the rights to your mortgage in order to make any loan changes (modifications) or to sell via short sale. Many homeowners will discover that either Fannie Mae or Freddie Mac (government entities who work with investors) own their loan. If your loan is not a Fannie Mae or Freddie Mac owned mortgage, it may be owned by a private investor.

If you are considering a short sale but are having trouble finding out who you need to get permission from, the next step is to work with a loan modifications attorney in New Jersey. He or she will be able to guide you toward finding out who owns your mortgage, and can also help you negotiate the short sale itself.

 

Image Credit: Mark Moz

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