“I have been trying for months to get a loan modification from my servicing company. But to no avail. So I thought if I spoke directly to the lender, I’d get a better response. But the servicer tells my they don’t know or can’t give me that information.

So, is that true? Who really owns my mortgage?”

Mortgage Insider Answer:

You always have a lender, so the servicing company is being disingenuous at best. They must pass on your payments to somebody, they just don’t want to tell you who that somebody is. The confusion comes in not when asking, “Who is my lender?”, but when asking, “Who are the investors?” If the servicing company rep thought you were asking the second question, he/she would be right in saying, “I don’t know”.

The reality is even though you have only one “lender” you have many “investors”. So in a way, no one entity owns your loan.

Your loan along with 100′s of other loan where put in a “pool” of say 100 million dollars of note value. The pool of loans is called an SPV or Special Purpose Vehicle, and then a security is created called a CDO or Collateralized Debt Obligation secured by the loans in the SPV. The lenders still own the loans in the pool and will contract out the servicing on those loans. So, the investors don’t “buy” the loans. The investors buy shares in the CDO.

The CDO shares belong to different “tranches” (See our Glossary Term - Tranche often spelled “traunch” or “traunche”), for this example lets say 10 tranches. Then they offer shares in Tranche 1 as a AAA rated Tranche…and get let’s say AIG to buy all the shares Tranche 1 for 20 million and give a 5% return to…(20 million x 10 is $200 million…so needless to say not every tranche gets sold for $20 million…but suffice it to say after they sold all the shares in all 10 tranches, they accumulate a couple a million more than the face value of $100 million they started with…not a bad days pay (which explains why they did it). Then they continued downgrading the traunches and assigning worse credit ratings and give an 8 or 9% returns to investors until they sold all all the shares in all 10 Traunches.

As you can see….no one investor owns a “whole loan” they own a share of a security that is backed by the payments of all of the loans in the pool….and the investors are segregated based on what rate of return they were promised off the entire pool. If a loan in the pool goes under…well the investors who bought AAA rated Tranche shares don’t care because they asked for less of a return in exchange for safety…so they know they’ll get paid. But the investor who bought CCC rated Traunches, say Traunches 8-10 are expecting a 10% rate of return since they are taking on more risk. These investor are the ones currently with high foreclosure rates who are not getting their money back or the interest….and it’s these investors who won’t allow SPS or any servicing company to modify the loans.

It’s those risky tranche buyers who are threatening lawsuits if the servicers attempt to modify the loans as it’s them who will never get their Billions of dollars back…

It’s these risky traunches….the “investments we can’t understand or value” that’s causing the banking crisis. Had Wall Street not created such a convoluted way to sell subprime mortgage to investors, we’d know how to re-value the failing ones…and the government could correctly compensate those investor harmed by a loan mod….but they can’t.

Ooops!

I found a video that explains this better for readers who are visual learners…take look!

Good Luck!

PS: If you want to know whether Fannie Mae or Freddie Mac owns your loan, check out the links below.

Freddie Mac Lookup Tool
Fannie Mae Lookup Tool

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