The short sale process can be very complex. Every bank and investor has a slightly different program and set of guidelines they follow. Since each investor has different rules and guidelines, it can help you considerably to find out who the investor is before starting the process.
Whether you are a homeowner in need of help with a short sale or an agent trying to help a homeowner, one of the best things you can do is to understand the situation you are getting into. A key piece of this short sale puzzle is finding out who actually “owns” the loan not just who services the loan.
Understanding the Back-end Process
To understand short sales, you need a basic knowledge of the back-end process of the mortgage market. A few years ago, when the market was booming, mortgages would be originated by a servicer such as Wells Fargo and then sold between the big mortgage investors like Fannie Mae and Freddie Mac. Today, in most cases, you are dealing with a servicer like Wells Fargo or Bank of America that “service” the loan but do not actually own the loan. The bank who originally lent the money is unlikely to still own it unless it is a small community or regional bank. In fact, Bank of America and Wells, the two biggest servicers, only own about 8-10% of their portfolio. The rest of their inventory is made up of loans they service for other investors. The investor guidelines ultimately determine whether to provide relocation money on the short sale, if there will be a debt release on the sale and also define a slew of other details.
How to Find Out Who Owns Your Loan
1.) First, you can look on your mortgage statement. If the loan is FHA backed it will have an FHA MI line-item on your statement that usually says” FHA insurance”. You can also look at your original Deed of Trust, as it will have your FHA case number on it. If you want to see if your property is owned by Fannie Mae or Freddie Mac, you can also find it directly under the loan look-up tools available on their websites. Here are the links:
2.) If your loan is not owned by one of these three entities you can ask the servicer of the loan who owns it – though they will not always tell you verbally. You could also research it by getting the title pulled. Chain of title will not always be conclusive either. However, in many cases, it has helped make it easier to “track” down the investor. In some cases, it could also be owned by the servicer; Wells Fargo could be the servicer and also the investor on the loan. This is called a “portfolio” loan. You can also request for your servicer to disclose in writing who the investor is if they will not verbally disclose that information. This is called a “qualified written request, or QWR”. On its website, the U.S. Department of Urban Housing and Development (HUD) provides a sample QWR and gives a brief explanation of this process.
3.) Another way to find out who owns your loan is through the Mortgage Electronic Registration System, Inc. (MERS). MERS is a company that was created by the mortgage banking industry. It maintains a database that tracks mortgages for its members as they are transferred from bank to bank. You can look up a loan to see if they have the investor information here.
Different Guidelines Used by Different Investors
The three biggest mortgage investors in the country are Fannie Mae, Freddie Mac, and FHA. VA is another big investor but does not have a portfolio nearly as big as the other three mentioned. With the exception of FHA/VA (because they insure their own loans), there also could be a mortgage insurer who provided insurance on the loan. The reason this is important to understand is that, when there is a servicer, investor and mortgage insurer on the loan, all three of them have to agree to the terms of the short sale. It is very important to find out from the very beginning of the process the identity of the actual end-investor on the loan. An FHA-backed mortgage has a totally different process for a short sale compared to a Fannie Mae loan.
Every investor has a different set of guidelines they set for short sales and foreclosure procedures so you have to understand that ultimately it is up to the end investor-not the servicer. The servicer has their own guidelines but they do not make the final decision. It is important that you know who the investor is because there will be times when you may have an issue with a servicer and you have to go to the investor to get it resolved.
There have been many transactions where the servicer and I disagreed on a particular issue and I went to the investor and got the approval. So make sure going in to this situation you know everyone involved and go to the servicer’s and the investor’s website to get familiar with their guidelines and any specific documents they may require.
On your third party authorization letter (the letter that gives you permission to speak to the bank on the homeowners’ behalf) always put the investor as well as the servicer so that if later you have to reach out to the investor you already have permission from the seller to do so. This also puts the servicer on alert that you know what you are doing and have already researched finding out who the end-investor is.