The U.S. Fed has given notice. It announced an increase in interest rates on December 15, 2016, and anticipates several increases in 2017. That’s a signal that you might want to sell your mortgage.
If you hold a mortgage, you have financed someone else’s debt. You receive payments instead of a bank. You hold a mortgage note that serves as a lien on the house or property, and it remains as your collateral.
The “note” is a contract detailing the specifics of the repayment promise including all the terms and conditions. What you may not know is the mortgage note itself is an asset that you can sell.
Primary and Secondary Mortgage Markets
In a Primary Mortgage Market, the debt on the property is financed by a traditional lending source like a commercial bank. That bank can and often does turn around and sell the note to another bank or government backed bank.
The secondary market is a niche where individuals, investors, and businesses may purchase the residential mortgage note.
The American Securitization® Forum reminds you that a residential mortgage is a negotiable instrument, and “The law of negotiable instruments developed over the centuries as a way to encourage commerce and lending by making such instruments, including negotiable mortgage notes, as liquid and transferable as possible.”
Get rid of the risk
Why would you sell a promissory note when there is a formal contract? Well, even the note does not guarantee repayment.
Family, friend, or stranger, the mortgagee can fail to pay. Their own financial problems will affect your security.
The mortgagee may not keep up the necessary insurance on the property, or they may neglect and abuse the property.
And, despite their obligation, the mortgagee may just walk away, not without penalty, of course, but at risk to your financial well-being.
Liquidate the value
With the increasing interest rate, the value of the mortgage note decreases because the note’s interest rate is fixed, but the cost of your money increases. So, selling your residential mortgage loan can be the easiest way to liquidate your asset.
The Department of Housing and Urban Development (HUD) explained this secondary mortgage market in its report: “secondary market entities increase the availability of financing for residential mortgage loans; they provide credit for innovative as well as traditional types of mortgages, and they serve homebuyers through their purchases of loans above the statutory loan limits of Freddie Mac and Fannie Mae.”
This has enabled homebuyers to purchase big loans their local bank won’t touch, and it lets sellers sell a home on terms that the usual bank lenders will not risk. For example, a buyer might secure a traditional mortgage loan for $300,000, but may not be eligible for a jumbo loan for $500,000.
If you are holding such a note, you may want to liquidate it because it is easy to do:
Maybe you want to start a business, or invest in something more lucrative. Maybe you need the cash to send a child to college, or split your assets in a divorce. Or, maybe you have reason to worry about the dependability of the mortgagee to pay off.
What’s it take?
According to Abby J. Shemesh, founder of Amerinote Xchange, the sale of residential mortgage notes “allows the note seller liquidating said asset to receive the largest lump-sum of cash possible.”
You pull together all the details on the note you own for the mortgage note purchasing business. You secure their quote. If favorable, you submit the contract.
Once the purchaser conducts a due diligence of the paper, you receive your money.
Author’s Bio
Michael F. Carroll
Title: Freelance writer at OutreachMama
Mike Carroll is a freelance contributor to Towering SEO and OutreachMama who helps businesses find their audience online through research, content copy, and white papers. He frequently writes about management, marketing, and sales with customized outreach for digital marketing channels and outreach plans depending on the industry and competition.
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