First mortgages and second mortgages – Residential Mortgage Services

A mortgage could be a contract between a receiver and a investor.

The receiver guarantees to pay back the cash that the investor lends him over a amount of years (the “term” of the loan) by creating payments monthly.

The home (or property) is that the “collateral” for the loan. If the receiver fails to create the specified payments monthly to the investor (which is termed “default”), then the investor takes possession of the house (called “foreclosure”) and therefore the home then belongs to the lender.

No good investor would ever lend $100,000 for a property that was price $90,000. If the receiver “defaults” and therefore the investor takes over the property, then the investor would have lost $10,000 right off the bat. For that reason, the investor needs a deposit from the receiver. If the property is price $100,000 and therefore the receiver makes a deposit of $20,000, then the loan is for $80,000. The distinction between what the receiver owes on the property ($80,000) and what the property is price ($100,000) is termed the “equity” ($20,000). The equity is that the portion of the property that the receiver truly “owns”.

As long because the receiver has SOME equity within the property, they’ll do away with a mortgage (called a “second lien”) on the property. though there may be over one mortgage on one property, there’s a “pecking order” for the loans. the primary mortgage is termed the “first lien” and therefore the mortgage is called the “second lien.”

When/If the loan is foreclosed upon, the primary lien holder gets paid first. If there’s cash left over, then the second lien holder gets paid.

As way because the receiver is worried, if he includes a 1st and mortgage, then he makes 2 monthly payments (a massive one and a touch one).

In the past few years, most 1st and second mortgages are related to subprime disposition. In some extreme (and stupid) cases, the receiver did not have enough cash to create a deposit. therefore guess what… the mortgage company offers him a second loan on the identical property so he will build a deposit on the primary mortgage. this suggests that the receiver truly has ZERO equity within the property. If he stops creating his payments, it’s unhealthy on his credit report, however he in all probability will not lose to any extent further cash than he would have paid in rent over the years that he had the property. (And we have a tendency to marvel why mortgage corporations went out of business.)

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