As you embark on the process of buying a house, you’ll need to complete many tasks before you can close and move into your new home. Likely the most important item on your to-do list will be securing a home loan. A key figure in the home buying process is the mortgagee, but who is the mortgagee and what are their roles and responsibilities?
Let’s look at what the term “mortgagee” means, what a mortgagee does and how they work with insurance providers.
What Is A Mortgagee?
The mortgagee is a type of lender that lends money to a borrower so that they can purchase real estate. The term mortgagee may refer to a bank, a credit union, a mortgage originator or any other entity that lends funds for a real estate purchase.
While the lender is known as the mortgagee, the borrower is referred to as the mortgagor.
Mortgagee Vs. Mortgagor
While their names sound similar, the mortgagee and mortgagor are completely different entities in a real estate transaction. As previously mentioned, the mortgagee is the lender offering the home loan, while the mortgagor is the party borrowing the loan to purchase the house.
In a real estate transaction, the mortgagee gives the home loan to the mortgagor who then offers the title of the purchased property to the mortgagee as collateral. The mortgagor becomes obligated to meet monthly mortgage payments and stay on top of the loan. If the mortgagor can’t keep up with monthly payments and defaults on the loan, the mortgagee can foreclose on the property.
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What Does A Mortgagee Do?
As the lender in a real estate transaction, the mortgagee has many responsibilities. Let’s go more in depth on some of the responsibilities the mortgagee has in a real estate relationship with a mortgagor.
Mortgage Origination
One of the main responsibilities of mortgagees is mortgage origination, which involves issuing a mortgage loan and setting the borrower’s interest rate. When taking out a mortgage loan, homeowners use their property or real estate as collateral.
Borrowers must also submit financial documentation to the mortgage lender, who then determines whether the borrower is eligible for the type of loan and the loan’s interest rate. Mortgage origination is a subset of loan origination and involves many steps, which include reviewing the borrower’s application, processing the loan, underwriting the loan and closing on the loan.
Creating Perfected Liens
A perfected lien is one that’s filed with a specific filing agent who ensures that interest is secured in an asset binding. Liens are beneficial for the mortgagee because they offer more protection with the loans and the lending contract.
Perfected liens can also help a mortgagee if a property is foreclosed. For example, a perfected lien shows documentation that a creditor can seize the property and sell the house.
Guiding Mortgagors
Another responsibility that any good mortgagee takes seriously is being ethical and doing right by the borrower, or mortgagor. This includes guiding mortgagors throughout the home buying and mortgage loan approval processes.
It’s important that lenders make sure home buyers can afford a property so that buyers don’t encounter financial problems during the loan approval and in the future. Mortgagees also help home buyers qualify properly by looking at the right factors and being non-discriminatory toward borrowers.
Mortgagees And Insurance Providers
As the mortgage lender, mortgagees work closely with insurance providers to make sure the property remains protected by the appropriate insurance policy or policies. Common types of insurance on a mortgaged property are homeowners insurance and flood insurance.
Mortgagees require that mortgagors purchase a homeowners insurance policy that provides coverage for property damage so the lender’s investment is protected and they don’t lose money. If the property became damaged, the mortgagee could potentially suffer financially. With an insurance policy, both the mortgagee and mortgagor are protected.
Mortgagee Clause Defined
A borrower can have a mortgagee clause in their insurance policy stating that if the property is damaged, the insurance company would make payments to the mortgagee. This means the loss would be payable to the lender even though it’s a part of the insurance policy. The clause also protects lenders if the insurance company cancels or voids the insurance policy. Ultimately, the mortgagee clause has many protections for the property, and like a perfected lien, it can also serve to protect the mortgagee.
The Bottom Line
Hopefully, you now know more than you previously did about the roles and responsibilities of a mortgagee and how they’re involved with the home loan and mortgage process. As you continue your home buying journey, understanding the different real estate terms you may encounter will make the process a bit easier.
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Victoria Araj
Victoria Araj is a Staff Writer for Rocket Companies who has held roles in mortgage banking, public relations and more in her 15-plus years of experience. She has a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.
