Pulaski

Banks in the UK do do securitisations, but they each do their own, with certain standard requirements but to a fair degree to their own design, whereas the US set up two (not sure why two?) quasi-independent "government sponsored" corporations, (the Federal National Mortgage Corporation aka "Fannie Mae", and the Federal Home Loan Mortgage Corporation aka "Freddie Mac") which used to have quotes on the New York Stock Exchange, and both of which collapsed in the aftermath of the 2008 financial meltdown, and now belong to the federal grovernment. Those corporations set up framework for the sale of highly standardized mortgages, and therefore securitisation is different in the US.

For several years after the 2008 meltdown, pretty much 100% of residential mortgages in the US were being sold by banks and mortage brokers to Fannie Mae and Freddie Mac, which were using them as security to borrow money that the Federal Reseve was "printing", and the money from the Fed was being used to pay the banks for the mortgages. That was a substantial part of the "quantitative easing" program that the Fed used to refloat the US economy. It sounds a bit iffy, and from an economics perspective it probably was - it was certainly experimental (it simultaneously increased both the amount of debt and the amount of money in the economy, by truly massive amounts) , but I guess we will find out over the next few years (the average mortgage loan in the US only lasts about 11 years), whether the mortages (mostly) perform and the Fed gets back the trillions it lent to underpin the mortgage market. If the mortages perform and the Fed gets paid back, then I guess we're all good and the experiment worked.

AFAIK the US mortgage market of standardised mortgage terms and documentation is unique to the US.

cautiousjon

Another interesting thing about the US mortgage industry is that the servicing of the loan is also routinely sold off/transferred to different companies. During the life of your US mortgage, your mortgage servicing (which encompasses who is responsible for receiving your mortgage payments and handling escrow; payment of property taxes and insurance) could switch hands a handful (or more) number of times. I recently received a letter saying that my mortgage is going to be serviced by a different company, so I have to switch my autopay directive to pay that mortgage company instead of the previous company.

As an aside, my mortgage got sold to Fannie Mae a few weeks after it was issued, despite the mortgage company telling me that they usually own/hold the mortgages that they issue. I guess I am special (or maybe not special at all!)?

Pulaski

Apart from the fact that statistically that is rare and is not how the US mortgage business works, and therefore unlikely to be true anyway, I have heard that from other people including friends and relatives, (they have been told "we usually hold the mortgages we issue") and I am not sure whether the mortgage lender's representative making the assertion [1] is just unaware/ ignorant of how the US mortgage business works, [2] knows that the servicing will stay with the original mortgage lender, so thinks that the borrower will not realise that the underlying loan has been sold. (This happened to us - we found that we were ineligible for a mortgage modification following the 2008 banking meltdown because our loan had been sold and the loan owner refused to agree to the loan being modified to extend the period and reduce the rate but we were unaware that the loan had been sold until we responded to the servicer's invitation to apply for a loan modification - I presume that most loans they serviced were eligible for modification), or [3] they are just making çrap up to appease the customer.

I would also add that the servicing of a mortgage can be sold without the loan being sold, because mortgage servicing is a profit-generating activity independent of the underlying mortgage, so I think most of the large US banks do retain the servicing (see [2] above) even though the underlying loan was sold. So if the original lender sells the loan (which as noted previously, they almost always do) then the new loan owner has to pay the servicer for serving the mortgage, but the original mortgage lender can sell the servicing rights independent of the underlying morgage loan. ..... And AFAIK neither Fannie Mae nor Freddie Mac service mortgages, so if your mortgage started out with Acme Bank, which does not provice mortgage servicing, and your mortgage was sold to Fannie Mae, your mortgage servicing could end up with Bravo Mortgage Servicing Corp.

Anian

I got my first mortgage through a reputable local lender, who immediately sold it on to a national lender of some disrepute. When I tried to remortgage with them a few years later, they made it so difficult that I switched the mortgage to a local credit union.

Rete

We've been very lucky that our mortgage has never been sold and has only a few more years to run.

cautiousjon

The loan officer of the mortgage company that we used specifically told me that the company "usually" holds "most" of the mortgages, but "reserves the right" to sell the mortgage on. Thankfully, when the mortgage was sold, it was sold to Fannie Mae and not some other company that could make it hard for us to remortgage (not that we likely will as we got a good interest rate for the term that we're happy with). The servicing was still being done by the original mortgage originator until very recently, when the servicing got sold to another mortgage company. We did have to take advantage of the 60 day grace period when the servicing got transferred as the new servicing company didn't have any ability to accept payments for our mortgage until several weeks after the next payment was due, and I had zero desire to make the old servicer reinstate the ACH draft that they had since cancelled or post a check to the company.

Steerpike

I'm trying to find some details for these stats. It's hard to get clear stats, because Freddie/Fannie aren't the only ones buying loans; private banks are also in the game. But still, this is what I could find:
According to this article - approx 2/3rds of mortgages get resold. That's a general number for 'all' secondary buyers (Freddie/Fannie, and private banks).
According to this article, "In Q3 2020, GSEs Fannie Mae and Freddie Mac purchased 61.9% of all newly issued mortgages, up from 45.3% in the third quarter of 2019" and "Portfolio loans — mortgages held by banks and not resold to another servicer — accounted for $223 billion in new home loans in Q3 202010. This represents a 19.6% share of first-lien originations, down significantly from 33.3% in Q3 2019".
This article gives a very detailed breakdown of the whole complicated process.
So to me, it looks like somewhere between 20% and 33% of loans don't get sold. Some of the above figures incorporate 2020, which was an odd market due to the pandemic.

Pulaski

That sounds likely, but although not sold they do get used as security to issue "mortgage back securities" (MBS) which are considered to be nearly as desirable (decent return, low risk) as US Treasury Bonds. If you buy a US treasury bond you are betting that the US government won't default, which isn't a bad bet to make, as Uncle Sam is the only country to never default on a debt. Whereas with an MBS you're betting that there won't be an unexpectedly large number of mortgages that both [1] default (a certain percentage of mortgages are expected to default when an MBS is created) and [2] are not covered by adeqaute collateral i.e. the foreclosed houses sell for less than the mortgage balances. Hopefully these days the mortgages used to secure MBSs are of higher quality than they were in the years immediately prior to the 2008 financial meltdown where MBSs secured on junk mortgages (borrower unable to make the mortgage payments and the loan exceeded realisable value of the house*) led the way over the edge into the abyss.

I would guess that the mortgages that are never sold are those originated by major banks that also participate directly in MBSs, so the likes of Chase, and Wells Fargo. I don't think Bank of America has much of a direct lending mortgage business, and I am not sure that Citibank does either, so if they, along with the Wall St banks like Morgan Stanley, Deutsche Bank, and Goldman Sachs are issuing MBSs then they will be buying mortgages from smaller banks, credit unions, and mortgage brokers.

* An interesting postscript to the 2008 financial meltdown was that many of the underlying "junk" mortgages that preciptated the crisis, in the end did not default, even in cases where it would have been "economically logical" for the borrower to "hand back the keys" and walk away from their home, as it seems that, surprise surprise, people are often rather attached to their homes and will do whatever they need to to avoid their home being reposessed. The result of this was that during the recovery phase, say 2012 - 2018ish, some banks were reporting $Bns of profits on mortgages they were selling that they had previously been forced to write down or write off (assign zero value to, not give up on and literally discard) between 2007 and 2010.
Most of the years since 2008 have been "odd" because of the collapse of Fannie Mae and Freddie Mac and the aftershocks. For several years Fannie and Freddie were almost the only buyers of mortgages, literally over 99%. I suspect that the end of the quantitative easing program by the Federal Reserve Bank reduced Fannie and Freddie's insatiable appetite for mortgages. For obvious reasons 2020-2022 have also been "odd".