Two Banks for Every Mortgage

By Grace Kelly

The bank that communicates with you is your service bank, however the bank that makes decisions about your loan is another bank behind that called a trustee bank. The trustee bank probably has sold rights to your mortgage in a number of small pieces bundled with other mortgages. "The most basic way a mortgage loan can be transformed into a bond suitable for purchase by an investor would simply be to "split it". For example, a $300,000 30 year mortgage with an interest rate of 6.5% could be split into 300 1000 dollar bonds. These bonds would have a 30 year amortization, and an interest rate of 6.00% for example (with the remaining .50% going to the servicing company to send out the monthly bills and perform servicing work)."




The trustee bank has contractual obligations to all of those securitized mortgage note holders. This is why it takes 30-40 days to for the banks to make mortgage decisions and requires help from home ownership counselors like Minnesota Home Ownership Center. Be wary of fee requesting rip off artists.

St Paul City attorney John Choi describes the difficulties in dealing with two banks, the servicer bank and the trustee bank for each mortgage.

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