Mortgage note

From Wikipedia, the free encyclopedia
Jump to: navigation, search

In the United States, a mortgage note (also known as a real estate lien note, borrower's note) is a promissory note secured by a specified mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. While the mortgage deed or contract itself hypothecates or imposes a lien on the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and obligates the borrower, who signs the note, personally responsible for repayment. In foreclosure proceedings in certain jurisdictions, borrowers may require the foreclosing party to produce the note as evidence that they are the true owners of the debt.[1]

Determinants of mortgage type[edit]

For the most part, it is the mortgage note which determines the "type" of mortgage:

Mortgage notes as investments[edit]

Like bonds, mortgage notes offer investors a stream of payments over a period of time. Mortgage notes are traded on the secondary market whole or as part of a mortgage-backed security. Unlike bonds, mortgage note prices are quoted as a percentage figure, e.g. 95 for 95%.[2]

Importance[edit]

In the United Kingdom, mortgage-related debt amounts to over £1 trillion.[3] In the United States bond market, mortgage-related debt amounts to $6.5 trillion and accounted for 23% of the market as of December 31, 2006.[4] $1.93 trillion of mortgage debt was issued on the US bond market in 2006; this is roughly the GDP of the United Kingdom, and is larger than any other debt category.[4]

Risks[edit]

The risks associated with mortgage notes are very similar to those of bonds:

For a fee, guarantors such as Fannie Mae, Freddie Mac, and Ginnie Mae guarantee mortgage backed securities against homeowner default risk, thus reducing the credit risk associated with mortgage notes.

Investors[edit]

Mortgage note buyers are companies or investors with the capital to purchase a mortgage note. If someone is holding a private mortgage, these investors will give cash and take over receiving the monthly payments that were being paid to the previous owner. A mortgage note for these investors are home loans or mortgages that are secured by real estate. Mortgage notes could be anything from $10,000 to tens of millions of dollars.

Comparison to other investments[edit]

The advantage of a mortgage note over a tax lien or tax deed certificate is that a mortgage note will allow one to collect the interest on a monthly basis. Tax lien and Tax deed certificates are only paid when the lien or deed is redeemed.

Produce the note defense in foreclosure proceedings[edit]

The chain of title of a promissory note is very important to every homeowner in America. The inability to show a complete chain of title and ownership of a promissory note from Lender A to Lender B to Lender C, etc. has become a major impediment in mortgage servicers ability to foreclose on properties in judicial foreclosure states and in relief of stays in Federal Bankruptcy Court. The issue of standing (in other words, the question of who has the legal right to sue), is the foundation of the produce-the-note strategy, which forces a lender prove that it has a legal right to sue.

Attorneys estimate that the documents belonging to as many as 50% of the mortgages made between 2001-2008 have been lost or destroyed, leading to demands by borrowers that the foreclosing party produce the note as evidence of the debt.[5]

Consumer advocates[who?] claim that almost all entities attempting to foreclose on homeowners are not the Real Lender, but rather a Servicer collecting monthly payments for a mortgage backed security (MBS) Trust. Therefore, courts have determined that Servicers are not the Real Party in Interest and possess no legal standing to seek relief from the courts.[citation needed]

References[edit]

  1. ^ Stacy, Mitch (2009-02-17). "Some Homeowners Facing Foreclosure Saying To Banks ‘Show Me The Note’". Associated Press. 
  2. ^ Wiedemer, John (2001). Real Estate Finance, 8th Edition. Prentice Hall. p. 57. 
  3. ^ Thornton, Philip (2006-06-30). "UK mortgage debt soars through £1 trillion". The Independent. 
  4. ^ a b "U.S. Bond Market Issuance Increases in 2006; Equity, Higher Credit Risk Asset Classes Top Performers" (PDF). Research Quarterly. February 2007. 
  5. ^ Branson, Michael (2009-02-24). "Produce Me The Note Or No Foreclosure Today". Huliq News.