Who Is A Mortgagee, And What Does It Mean When Buying A House?
Hanna Kielar3-minute read
July 12, 2023
One of the first things you’ll realize when applying for a mortgage is that there are a lot of confusing words and phrases that you’ll encounter throughout the process. 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 words: “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. Actually, “mortgagee” is a technical term related to your mortgage. Here’s what you need to know.
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, other financial institution or specialized mortgage originator like Rocket Mortgage®. Put simply, the mortgagee is the entity giving you the home loan.
Mortgagor Vs. Mortgagee
The term “mortgagor” refers to you, the borrower, and can be used to refer to all parties involved in taking out a mortgage loan. When thinking about the mortgagor/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.
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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 And Offer Mortgage Rates
While lenders do set the mortgage rates they offer clients, they aren’t just making things up as they go along. Mortgage rates are 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. The actual rate you’ll pay on your mortgage depends on your unique financial situation, but it will still fall within the range set by the mortgage market and the mortgagee.
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 principal amount, repayment term and interest rate that your policy should have. Once they’ve done that, they approve you for the mortgage. If you agree to the loan’s terms, they’ll issue 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. Once the lien is in place, your home will be used as collateral for the loan. As long as you continue making payments on time, the lender won’t have to take action on the lean. However, if you default on the loan or stop making payments, the lender may take possession of your house.
Seize A Home
The lien is important because it gives the mortgagee the right to seize the home if the borrower defaults on the mortgage. Borrowers most commonly do this by failing to make required monthly payments.
Sell Or Secure A Seized Home
Once a home has been legally foreclosed upon and seized, a lender will sell the property 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 components 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.
Understanding the difference between these terms can simplify the application process, no matter what type of home loan you’re applying for.
Thinking about buying a new home? Start your mortgage application today with Rocket Mortgage so you’ll know how much home you’ll be able to afford.
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