Topic 12.4: Assignment of the mortgage

Learning Objective

After successfully completing this topic, you will be able to explain assignment of a mortgage and the purpose of an estoppel certificate.

Overview

Most lenders sell mortgages to a secondary mortgage lender like Fannie Mae.

Most lenders sell the mortgages immediately after a closing to secondary market investors. Holding a mortgage for a longer period than necessary exposes a lender to the risk that interest rates will rise, and cause the value of the mortgage to drop.

For example, if a lender makes a $200,000 loan at 4%, and the loan can be sold to an investor for a 4% yield, the lender will pay $200,000 for the loan. If the lender does not sell right away and mortgage rates rise to 4 ½%, the loan is not worth as much. Because the investor will want a 4 ½% yield, the lender will pay only 96% of the loan amount. Remember that each discount point is about 1/8% increase in yield so 4 points (4%) must be discounted. So, holding the loan cost the lender $8,000 (4% of $200,000). Bet the lender won’t do that again!

When the lender sells the loan to the investor, the lender assigns all rights and duties to the investor, using a document called an assignment of mortgage.

Estoppel certificate

As part of the assignment of mortgage, the investor will require an estoppel certificate from the borrower. The certificate, also called an estoppel letter, verifies the balance of the loan, the interest rate, the payment amount, and the number of payments remaining.