Mortgage Securitization Process
What is a security?
A security is a financial instrument that represents some sort of financial value. Securities can exist in several forms, such as a stock, bond, or mortgage. A security can specify direct ownership of a financial instrument - like a stock or a bond - and can also indicate that the quantity of a security can be replaced or traded by something else of equal value, part, or quantity. Institutional investors such as banks invest in securities such as pension funds, managed funds, insurance funds, or mortgages.
Securities are divided into two different categories: debt securities and equity securities. Equity securities represent ownership of securities - such as stocks - and typically offer the ability to profit from holding the equity security. Debt securities, on the other hand, represent money that is borrowed and must be repaid. Interest rates must be applied to debt securities.
Massachusetts Bankruptcy Attorney Explains Securitization
The process of securitization refers to some sort of illiquid asset - an asset that cannot be converted into a monetary or cash value - being collected and transformed to replace the value of something else. The most common example of the securitization process is a mortgage-backed security (MBS). An MBS is simply a type of financial instrument secured by mortgages and is issued by any third-party financial institution, such as a bank or lender.
The mortgage securitization process typically involves the following:
- An authorized institution creates numerous mortgages or home loans, which are then claimed by an individual who borrows money to purchase a real piece of property.
- All of the mortgages or home loans are collected together in a mortgage pool, which are held as collateral for an MBS.
- A new security is created and is backed by the mortgagor's assets.
- This new security can be sold, bought, or traded to a secondary mortgage market, such as insurance companies and hedge funds.
Overall, the mortgage securitization process exists to allow mortgage originators to sell mortgage loans and use the money to make more loans to homeowners. The process allows lenders to continue to recycle loan money to homeowners without retaining the loan assets on their books. Unfortunately, this has led to predatory tactics, and some financial companies take advantage of buying MBS from secondary mortgage markets.
What does this mean for Massachusetts homeowners?
Predatory and fraudulent private financial companies that pool mortgages that do not adhere to Federal Housing Administration standards make it nearly impossible to track down the original owners of loans. For homeowners in Massachusetts, this could mean that a mortgage loan does not belong to a single owner. Because a mortgage or loan may have been bought, traded, or sold several times, determining which mortgage service company is responsible for the mortgage can be extremely difficult.
Fortunately, a skilled Massachusetts foreclosure defense attorney from our firm knows how to use this difficulty to your advantage! Even with the help of Mortgage Electronic Registration Systems, determining the original owner of a loan or mortgage is extremely challenging, especially after it has gone through the mortgage securitization process. Because the owner of a mortgage can only initiate a foreclosure process, an attorney can offer defenses to foreclosure of your home if the original owner may not be the one initiating the foreclosure process.
Foreclosure law is extremely complex and confusing, so if you have questions about your foreclosure or need foreclosure defense, we would be happy to help you. Helping you stay in your home is our ultimate goal, so do not hesitate a moment longer. Contact our firm today to speak with one of our associates. Call us now!