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 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 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.
- Drowning in debt?
- Feeling stressed because of your finances?
- Being harassed by creditors?
The Law Office of Glenn F. Russell, Jr. is here to help you with all these issues and so much more before they become a major issue.
"I truly appreciate having Glenn not just as an advisor, but someone truly on my team."
- Glenn is knowledgeable in his area, above many. He takes the time to truly understand his clients needs and expectations. He has been an advocate for me. I truly appreciate having Glenn not just as an advisor, but someone truly on my team.- Chris M.
Do I really need a foreclosure lawyer?Absolutely. Should you need foreclosure defense counsel, only an experienced attorney can determine which course of action is best for you. Whereas predatory scam artists try to prey on your financial vulnerability, a skilled foreclosure defense attorney genuinely can look out for the best interest of you and your family. Legal advice must be practical and efficient in order to be effective, so if you need strong legal guidance, trust that The Law Office of Glenn F. Russell, Jr. can offer the counsel needed to successfully navigate the complicated legalities of foreclosure or bankruptcy.
Third parties are offering to help my foreclosure process. How do I know who to trust?
Perhaps one of the greatest obstacles individuals encounter during the foreclosure process is learning who to trust and who to avoid. Due to the nature of the foreclosure process, descriptions of any homes being foreclosed may be published and accessible as public information. It is a sad truth that there are fraudulent companies that prey on public lists of foreclosing homes and attempt to take advantage of a people's financial vulnerability.
You may be contacted by mortgage brokers, mortgage negotiators, or mortgage holders. You may also be contacted by a Massachusetts bankruptcy attorney or a private financier who offers to help you sort out your finances. These parties may be dependable sources of legal and helpful advice during your foreclosure.
Unfortunately, there are frauds and scam artists who will try to take your home or your money without providing any sort of service. A general word of advice we give to clients to follow is: If a deal sounds too good to be true, it probably is. Avoid scams with the help of a qualified attorney from our firm!
What happens at a foreclosure sale?
It doesn't happen all the time, but if you have exhausted all of your legal alternatives and feel as though a foreclosure or short sale is the last resort, you need to know what to expect.
No foreclosure sale is exactly the same, but for the most part, the foreclosure sale process typically involves the following:
- Lenders must first send a notice of a foreclosure to the homeowner. The notice must be sent at least 14 days prior to the foreclosure sale date.
- A foreclosure sale will take place at the date, time, and place specified in the foreclosure notice.
- The foreclosure sale will be conducted by a licensed auctioneer. The auctioneer will read various legal notices, descriptions, and documents pertaining to the property.
- The auctioneer will take bids on the property, take deposit checks, and accept the highest bid to close the foreclosure property sale.
- Parties - including the mortgagor, the purchaser, and the auctioneer - will draft a foreclosure deed, which must be recorded and filed at the Registry of Deeds.
- A grace period - typically 30 days - will be given to allow the purchaser to line up financing.
- A closing will take place, and the new owner will formally take title to the foreclosed property.
All monies paid by the new purchaser will go toward paying real estate taxes, owed mortgages, and payments to creditors or other debts owed on the property. If no one at the foreclosure sale is able to bid a high enough amount to cover the debt of the property, then the balanced owed - called a deficiency - would then be the liability of the old owner.