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1.3.3.1 Introduction

After a mortgage loan transaction has been consummated a new set of players frequently comes onto the scene. The rise of the secondary mortgage market and the securitization of mortgage loans has created an entirely different cast of characters that play roles during the lifespan of a mortgage loan.

For most of the twentieth century, a mortgage established a long-term relationship between lender and home buyer. The same entity conducted all facets of the home purchase transaction related to obtaining and paying the mortgage loan. Today the vast majority of loans are originated and then sold in whole, so one investor ends up with the entire loan, or securitized. The securitization process, which is discussed in more detail at § 1.3.3.4, infra, involves pooling mortgage loans, transferring those obligations to a trust, and then selling fractional interests in the trust’s pool of mortgages to investors. Regardless of whether the loan is sold whole or securitized, the end result is that the mortgage holder is typically not the bank or mortgage company that originated the loan.

The right to service mortgage loans may be sold or transferred independently of the loans themselves. The entity with the right to service a mortgage loan is called a servicer. Servicers provide the link between mortgage loan borrowers and mortgage loan holders. They collect and process borrowers’ payments, handle interest rate adjustments on adjustable rate mortgages, collect and report information to national credit bureaus, and prosecute foreclosures in the event of default. Commonly, the originating lender retains the servicing rights when it sells a mortgage loan. Such a lender would be considered both the originator and servicer, but not the current creditor, or holder, of the loan.

This subsection highlights processes and players that may become involved with mortgage loans after the loan closes.