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Where did my mortgage go?

Updated: May 3, 2013 12:14PM

Once upon a time, in the olden days (at least 25 years ago), you went to the bank for a mortgage. The banker checked your finances, and your down payment, and gave you a fixed-rate, 30-year loan. Then they filed the documents away in the basement and sent you a bill every month for the payment.

And in the olden, olden days (about 50 years ago), your grandparents celebrated paying off their mortgage with a quaint "mortgage-burning ceremony," throwing those paid-off documents into the fireplace.

Now we're in modern times. To get a mortgage, you didn't need a down payment, you didn't need much documentation of your finances, and you didn't need to know your banker. And your loan didn't have a fixed rate, or a fixed repayment schedule. That would be adjusted later, based on changing global interest rates.

Brokers competed to make mortgage loans and earned a commission on every deal they sent to a financial services company or bank. Those banks didn't store your mortgage in their vaults; they packaged it up with a bunch of other mortgages and sold them to investment banks. The investment banks found investors to divvy up these hundred-million-dollar loan packages, each buying a piece of the new "mortgage backed security."

And some of those loan packages were different kinds of loans, blended together, then sliced like a meatloaf and served to investors (banks, pension funds, hedge funds) around the world. So the first principal repayments on your loan went to one investor, while the last payments would be owned by another investor willing to accept more risk.

These package deals were attractive because mortgage loan rates were higher, and because these securities carried "ratings" saying they were good investments. After all, it's common wisdom that people default on their mortgages only as a last resort!

Sure, the homeowner keeps making a monthly payment to one loan "servicer" -- but the "owners" of that loan are spread around the world, and a computer distributes the payments to them out of your monthly check. It's difficult, if not impossible, to get those holders together to agree on accepting a lower interest rate or lower monthly payments from a desperate homeowner.

If you were lucky enough that Fannie or Freddie took ownership of your loan, and packaged it up intact for sale to investors, you have a better chance at renegotiating the terms. Fannie and Freddie are under huge pressure from the government, after their bailout, to work with you.

But first you have to get the attention of someone at the "servicing" company, hoping they'll investigate to find the ultimate owner. Sure, they'll find you to evict you if you default on your loan. And they'll ultimately sell that foreclosed home and distribute the proceeds through their computerized system to the loan owners. But don't ask them to step in and help you avoid that fate by separating your loan from the package. They don't get paid for that!

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