The securitization of mortgage loans goes back to the 1970s and has contributed to the availability and affordability of mortgage credit. It is estimated that some mortgage lenders securitized as much as 70-80% of their outstanding mortgages through the sale of Mortgage Backed Securities (MBS) in the capital markets.
The combination of high foreclosure rates in the wake of the 2008 downturn and high levels of mortgage-backed securitization activity has many people attempting to understand the securitization process and identify the parties to the MBS transactions and their assigned responsibilities.
Parties involved in MBS transactions include the Borrower, the Originator, the Servicer and the Trustee, each with their own distinct roles, responsibilities and limitations.
- The Role of the Corporate Trustee
As Trustee, WSFS has the following responsibilities:
- Holds an interest in the mortgage loans for the benefit of Investors
- Does not initiate, nor has any discretion or authority in the foreclosure process
- Does not have responsibility for overseeing mortgage Servicers
- Does not mediate between the Servicer(s) and Investors in securitization deals
- Does not manage or maintain properties in foreclosure
- Is not responsible for the approval of any loan modifications
All Trustees for MBS transactions, including WSFS, have no advance knowledge of when a mortgage loan has defaulted. Trustees on MBS transactions, while named on the mortgage and on legal foreclosure documents, are not involved in the foreclosure process
The Trustee does not have an economic or beneficial interest in the loans and has no authority to manage or otherwise take action on the loans, which is reserved for the Servicer.
- Servicer vs. Trustee Responsibilities
Appointed by the Sponsor, the Servicer is the contractual party to the Trust for the benefit of Investors, and has the following responsibilities:
- Collects payments from the Borrower/mortgagee
- Maintains loan level detail
- Pays property taxes and insurance, if applicable
- Calls a default for non-payment
- Forecloses on the mortgage and maintains the related property
- Modifies mortgage terms within limitations outlined by the provisions of the Pooling and Servicing Agreement relevant to a particular MBS transaction
- Maintains the physical property to comply with local housing codes
As noted, the Trustee does not play a role in initiating or managing a foreclosure process and consequently has little, if any, information relating to mortgage loan activities including a foreclosure. Depending on the particular Trust and pool, the Trustee may have very limited information on either the Borrower or the property.
The Servicer, who is selected by the Sponsor of the Trust, may have to foreclose on a property if a Borrower (mortgagee) does not make payments as required by the mortgage documents. Any action taken by the Servicer must maximize the return on the investment made by the “beneficial owners of the Trust” – the Investors.
- How to Obtain Information on a Specific Mortgage Loan or a Property
To learn more about a foreclosed property, contact the Servicer for the MBS transaction that holds the mortgage as collateral. The most effective way to identify the Servicer for a specific mortgage is to ask the Borrower (homeowner) who they make their monthly payment to or from whom they receive their monthly statements. The firm receiving the payments and sending statements is generally the Servicer for the MBS transaction and can offer more details regarding a property.
You can also search our database by property address and find out how to connect with the Servicer to address your questions.
Borrower: The person or entity responsible for the mortgage note and making the principal and interest payments in accordance with the underlying mortgage documents.
Investment Bank/Sponsor: The entity responsible for structuring the MBS transaction and selling the securities to Investors.
Investor: The buyer and owner of an MBS certificate or certificates.
Originator: The financial institution or mortgage lender who originally initiated the mortgage agreement with the Borrower.
Servicer: Appointed by the Investment Bank/Sponsor and a contractual party to the Trust. The Servicer administers the mortgage loans and collects monthly payments (e.g., principal/interest, tax, insurance). If a Borrower (mortgagee) does not make payments to the Servicer as required by the mortgage documents, the Servicer may have to foreclose on the property and provide property maintenance to maximize the return on the investment made by the “beneficial owners of the Trust” – the Investors. Some MBS transactions have more than one Servicer. The Servicer does not own the mortgages/collateral. The Trustee does not designate the loan Servicers, nor are the loan Servicers agents of the Trustee.
Special Servicer: The party designated to “work-out” loans or foreclose on loans if they go into default. The Special Servicer may agree to modification, waiver or amendment of any term, extend maturity, defer or forgive interest or prepayment charges and permit the release or substitution of collateral, Borrower or guarantor as long as it is ”in the best interest of the certificate holders.” If a loan is in default for more than two payments (60 days) or defaults at maturity, it is assigned to the Special Servicer who takes over direct discussions with the Borrower. The Special Servicer can also get involved if it gets notice of “imminent” default. The Special Servicer makes all final decisions about dispositions of defaulted property and Real Estate Owned (REO).
Trust: Generally a special purpose entity, such as a Real Estate Mortgage Investment Conduit (REMIC), that is formed solely to hold the mortgage collateral and to issue the securities that are then sold to Investors. The Trust owns the pooled mortgages. The Trust conducts no other business. Certificates issued by the Trust represent a financial interest in a pool of mortgages owned by the Trust and is the primary source of funds for payment of interest and principal due to the Investors on certificates they own.
Trustee: An independent party, responsible for administering the Trust for the benefit of Investors. While the Trustee is listed as the owner of record, the Trustee does not have an economic or beneficial interest in the loans. The Trustee is the owner of the mortgage solely for the benefit of the Investors in the mortgage-backed securities, who are the true beneficial owners of the mortgages. The Trustee holds a security interest in the mortgaged property by having the mortgage loans assigned in the name of the Trustee for the benefit of the Trust (e.g. WSFS as Trustee for the MBS Trust) or in the name of MERS, a Mortgage Electronic Recording System used by many of the largest financial institutions. The duties of the Trustee are administrative in nature, are clearly spelled out in the MBS transaction documents, and generally are non-discretionary in nature.