Mortgagee: A Definition
Hanna Kielar3-minute read
July 23, 2021
At some point, mortgage lenders must have decided that the home buying process was important enough to warrant a lot of confusing terminology. The good news? While getting a mortgage can be complex, learning all the mortgage terms you need to know is more accessible than ever.
In this handy guide, we’ll be going over one of those confusing terms: “mortgagee.” Contrary to what we’re sure must be the initial impression of many, it’s not just a typo for the word “mortgage,” even if that might be how you got to this article.
Who Is The Mortgagee?
“Mortgagee” is a term you’ll likely see in your mortgage documentation. It refers to the lender, whether that’s a bank, credit union or specialized mortgage originator like Rocket Mortgage®. Put simply, the mortgagee is the one giving you the home loan.
Mortgagor Vs. Mortgagee
You’ll also see the term “mortgagor,” referring to you, the borrower. When thinking about the mortgagor versus mortgagee relationship, remember that the mortgagee is the entity lending the money for the home, while the mortgagor is the person or persons borrowing the money to buy a home.
What Does A Mortgagee Do?
The lender or mortgagee has many responsibilities and performs several tasks throughout the course of the home buying and homeownership process. Let’s take a closer look at some of those.
Set Mortgage Rates
While lenders do set mortgage rates, they aren’t just making things up as they go along, because most mortgages are sold on the bond market with the help of mortgage investors like Fannie Mae, Freddie Mac or the Federal Housing Administration. Mortgage rates are set based on market demand. This demand is influenced by economic conditions, which impact whether people are investing in stocks or bonds and factors like the federal funds rate, which is the rate at which local banks borrow money on a short-term basis from the Federal Reserve.
Originate And Issue A Mortgage
The lender has to take your application and underwrite it, meaning they make sure you qualify. They’ll collect and review some information on you – your credit score, debt-to-income ratio (DTI), income and assets, etc. – and determine the amount and provisions that your policy should have. Once they’ve done that, they give you the mortgage.
Draft A Secured/Perfected Lien
A mortgage is a loan that’s secured by your home. As such, one of the things a lender will do is set up a perfected lien to protect their interest in the transaction.
Seize A Home
The lien is important because it gives the mortgagee the right to seize the home if you as the borrower default on your mortgage. Borrowers most commonly do this by failing to make the required monthly payments.
Sell Or Secure A Seized Home
Once a home has been legally foreclosed upon and seized, a lender may sell the property for as much as they can get in order to recoup their losses. In the event that the mortgage has been sold to an investor like Fannie Mae or Freddie Mac, it’s the job of the original lender to secure the property until it can be sold in accordance with the policies of that particular mortgage investor.
What Is A Mortgagee Clause?
A mortgagee clause specifies how a lender wants to be referred to in legal documents. Think about this as the lender’s legal name and address. It may seem silly to have an entire contract clause based on this, but some lenders can be very particular.
There may be a different mortgagee clause with a different legal name and/or address used for things like homeowners insurance documents than there would be for the clause relating to closing and title documents. This ensures that any legal paperwork related to these separate issues gets to the right area of the business.
The Bottom Line: A Mortgagee Lends Money To The Mortgagor
A mortgagee is simply the entity that makes the home loan, while a mortgagor is the person or persons who apply for and borrow money to buy the home. If you’re looking to secure a mortgage, you are the mortgagor, and your lender is the mortgagee.
The mortgagee sets mortgage rates and originates and issues mortgages in addition to securing the loan with a perfected lien. Thatlien allows the lender to seize or sell the property to recoup their losses or those of third-party investors in the event that the borrower defaults. Finally, a mortgagee clause specifies the lender’s legal name and address, which may or may not differ in such paperwork as insurance policies and title or closing documents.
Looking to learn more about who’s who in the home buying process? Check out our guide to all parties involved in getting a house.
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