The Basics of How Your Mortgage Works Today

The Basics of How Your Mortgage Works Today

Now that the housing market is dropping even more, the mortgage system has gotten the interest of the general public. Most are asking the question, "How could this continue to happen?"


Just a few years ago, the world was rocked by a financial crisis of mythical proportions. Whole corporations went under, banks were in danger of closing, even several countries declared themselves bankrupt. In the wake of that disaster, it was not a surprise that the housing market began to fail and people were faced with spiraling mortgage payments and the threat of foreclosure.


After promises to recover within a few years, the market sees itself going under once again, possibly in a worse situation than the previous one. It's not the best time for people to know that foreclosure affidavits had been falsified and some foreclosures have been proven to be without due process or due cause.


It's no wonder that home owners that have had their homes foreclosed in the previous years are up in arms. They were victims of fraud, cheated out of their homes by unfair affidavits. The trail gets muddied up even more since many home owners were not able to meet their payments and had their mortgages reversed. These rushed affidavits are now under scrutiny by state prosecutors.


What caused this is the now more complicated system of getting a mortgage. While in the past, a mortgage was simply with one bank that the debtor paid every month, mortgage banks or lending companies have devised a system of making more money – they sell the mortgages to Wall Street where they are traded as Mortgage Related Securities.


Here, the securities are divided up into "tranches" or segments. Many investors own a piece of a certain mortgage, with the first tranche being the lower risk, guaranteed portion and the second tranche making up the higher income, riskier portion. Actual notes are not traded here, simply entries into the Mortgage Electronic Registration System or MERS.


Any payments made will go straight to the final investors. However, the note itself will not be able to show who the current owners, the lenders, are since the local property records are not updated to reflect this fact.


All of this created a new mess in the US housing market, but one that may finally give a much-needed overhaul to the lending institutions and borrowers alike.