Mortgagee sitting across the table from clients signing papers.

Mortgagee: An Explanation

3-minute read

September 17, 2020

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At some point back in the day, mortgage lenders must have decided that the home buying process was important enough to warrant a lot of confusing terminology. That way, they could make extra money by walking you through the legalese. That may not be the reason getting a mortgage can be so complex, but you would have a hard time proving otherwise.

Today, 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?

A term you’ll likely see in your mortgage documentation, mortgagee refers to the lender, whether that’s a bank, credit union or specialized mortgage originator like Quicken Loans®. The mortgagee is the one giving you the home loan.

You’ll also see the term mortgagor, referring to you, the borrower. When thinking about the mortgagor versus mortgagee relationship, 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 several things they do throughout the course of the home buying and homeownership process, including the following:

  • Set Mortgage Rates: While lenders do set mortgage rates, they aren’t just making these 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 FHA. Therefore, 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 as well as things 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. 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 the borrower defaults on the mortgage, most commonly by not being able to make the 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 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 legal paperwork related to these separate issues gets to the right area of the business.

Summary

A mortgagee is simply the entity that makes the home loan. A mortgagor is the person or persons who apply for and borrow money to buy a home. The mortgagee sets mortgage rates and originates and issues mortgages in addition to securing the loan with a perfected lien. The lien allows a 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 cause is a lender’s legal name and address, which may or may not be different for things like insurance policies and title or closing documents.

The vocabulary around getting a mortgage can be complex, but the process of getting a mortgage doesn’t have to be. If you’re interested in getting started now, you can apply online with Rocket Mortgage® by Quicken Loans® or check out our mortgage calculator.

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