A Mortgage and a Loan?

A mortgage is NOT a loan

What most people don't understand is that a mortgage is NOT a debt - it is not a loan. This is no fault of the average person as the word mortgage has cleverly been used in advertising, by banks and other lenders, in such a way to make it appear that a loan and a mortgage are one in the same when in fact they are two very different things.

Most of us are accustomed to calling our home loan a mortgage, but that isn't an accurate definition of the term. A mortgage is not a loan, and it is not something that the lender gives you. It is a security instrument that you give to the lender, a document that protects the lender's interests in your property.


That's right - it's a separate document! It is attached to the title of your home and registered with the lands department. In Western Australia it's Landgate. http://www.landgate.wa.gov.au/docvault.nsf/web/FOR_DLI_Cocos_KeelingM1/$FILE/FOR_DLI_Cocos_KeelingM1.pdf


You can request a copy of your mortgage for a small fee - in WA it's $24.


When you take out a loan with your lender there are three documents.


· the loan application form (LAF) - this document is the one that lists your details, assets and liabilities, income, the amount of the loan and other relevant information. It is used to assess your eligibility for the amount you are borrowing - in particular your ability to repay the loan. This document has your signature on the same page as the amount you are going to borrow as well as other important information. Here is the Bankwest LAF. Take a while to read it and notice where your signature is.


http://www.afc-online.biz/forms/applicationforms/bankwest/BankwestLoanSummaryChecklist.pdf


· the loan contract - this document is an offer showing the amount of credit approved, repayment schedule and general terms and conditions. Within this document is a section detailing the security you are putting up to guarantee the loan in the event you default - your home is the security. his documents is the terms/conditions you agree to.


· the mortgage - is a separate document you sign and is registered with the appropriate lands department for your state. This document is a "security interest". It means that in the event you don't make the repayments you have agreed to in the loan contract the bank can make a claim on your home to recoup what they are owed. Here is the WA Landgate mortgage form: http://www.landgate.wa.gov.au/corporate.nsf You probably signed this thinking it was just another document necessary to get the loan.

So in a nutshell:


· You apply for a loan with Bank B. (LAF)


· Bank B approves your loan and makes an offer (Loan Contract)


· In exchange for the loan you grant Bank B a mortgage over your home


Without the mortgage the loan is unsecured. If you default an unsecured loan the creditor has to pursue you through the courts to make a claim for moneys owed A mortgage over your home is an automatic claim to a specific property you own in the event of default ie: your home.

So what? Well the general public's ignorance of the difference allows the banks to securitise their loans. Securitisation isn't illegal it just works without the borrower's knowledge.

Securitisation was rampant pre GFC...now all those securitised loans are in threat of default and the house of cards will tumble down.

read more about it here:
http://bankbeater.blogspot.com.au/2013/01/why-you-should-know-about-securitisation.html

Dont know what your beef is or how it helps you "Beat the bank"

Its standard business practice to get title over property to secure your interest in that property.
Businesses get directors guarantees among other things.
Are you advocating that banks shouldn't be able to claim title to property they lend on?

Buyers must conduct due diligence.
I wouldn't lend to anyone without security and have taken caveats on property to protect financial interests in the past.
Ive also placed Liens over property where the owner hasn't cleared a debt for work on that property.
Damned effective I might add.

One of the reasons the AUS property market hasn't fallen like the US market.
There they just walk out and hand back the keys.

I actually don't have a "beef".

My point is that most people don't really understand what a mortgage is.

They are mislead into believing it is a debt instrument when in actuality it is a security interest.


A mortgage secures the debt, which has been used to purchase a tangible asset, by placing a lien on the asset. It's an important distinction that most people don't understand.

cordelia said:

My point is that most people don't really understand what a mortgage is.

Click to expand...

You're technically correct, but I'm not sure what you're point is.

cordelia said:

So what? Well the general public's ignorance of the difference allows the banks to securitise their loans. Securitisation isn't illegal it just works without the borrower's knowledge.

Securitisation was rampant pre GFC...now all those securitised loans are in threat of default and the house of cards will tumble down.

Click to expand...

Time to sound the non sequitur klaxon!

Some points:

1/ Without the security afforded by a mortgage, lending to fund home purchases would be much more risky and therefore rates would be much higher.
2/ People are perfectly aware that banks have security over their home
3/ This is an important one as it appears there’s a fundamental gap in your argument – it’s perfectly possible to securitise unsecured loans!

doctorj said:

You're technically correct, but I'm not sure what you're point is.


Time to sound the non sequitur klaxon!

Some points:

1/ Without the security afforded by a mortgage, lending to fund home purchases would be much more risky and therefore rates would be much higher.
2/ People are perfectly aware that banks have security over their home
3/ This is an important one as it appears there’s a fundamental gap in your argument – it’s perfectly possible to securitise unsecured loans!

Click to expand...

You are correct on all three points (except that I have a gap in my argument)...but my point is that the majority of people think a mortgage and a loan are one in the same when they are most definitely not. You can securitise any loan - secured or otherwise...Banks do it with credit cards all the time....but when I talk about securitisation I am talking about RMBS - mortgage backed securities - my fault for not making the distinction.

In these securitisations only the loans are assigned not the mortgages... all is well and fine until a borrower defaults and that's when it gets interesting....Here is an excerpt from the 2010 CBA Swan Trust Securitisation Prospectus:

The delay in the notification to a borrower of the assignment of the Housing Loans to the
Trustee may have the following consequences:
(a) until a borrower, guarantor or security provider has notice of the assignment, such
person is not bound to make payment to anyone other than Bankwest and can
obtain a valid discharge from Bankwest. However, Bankwest is appointed as the
initial Servicer of the Housing Loans and is obliged to deal with all moneys
received from borrowers in accordance with the Series Supplement and to service
those Housing Loans in accordance with the servicing standards;
(b) until a borrower, guarantor or security provider has notice of the assignment,
rights of set-off or counterclaim may accrue in favour of the borrower, guarantor
or security provider against its obligations under the Housing Loans which may
result in the Trustee receiving less money than expected from the Housing Loans
(see Section 3.8 (“Set-Off”) below);
(c) for so long as the Trustee holds only an equitable interest in the Housing Loans,
the Trustee’s interest in the Housing Loans may become subject to the interests of
third parties created after the creation of the Trustee’s equitable interest but prior
to it acquiring a legal interest. To reduce this risk, the Servicer has undertaken not
to consent to the creation or existence of any security interest over the mortgages
securing the Housing Loans; and
(d) for so long as the Trustee holds only an equitable interest in the Housing Loans,
Bankwest must be a party to any legal proceedings against any borrower,
guarantor or security provider in relation to the enforcement of any Housing Loan.
In this regard, the Servicer undertakes to service (including enforce) the Housing
Loans in accordance with the servicing standards.



Here's the reference:
http://www.commbank.com.au/about-us...eries_2010-1_Swan_Trust/IM/Swan_IM_2010-1.pdf

In the case of a securitisation of home loans an equitable assignment means one party holds the loan (receivables) whilst the (bank - originator) is registered in the land titles office as the mortgagee...note point (d) above... and this is why the bank has to be a "party to any legal proceedings against the borrowers".....The bank assigns the loan, gets paid out for it but is still the mortgagee.....

A legal assignment transfers the loan and mortgage together....but a legal assignment is not securitisation friendly....tax wise and other reasons. Once the borrower is notified of the assignment the title is perfected and the trust is collapsed....Title Perfection Event....

The loan and the mortgage can travel separate paths but they have to come together to enforce the obligations of the debtor....as per point (d)......

The GFC was a panic sell off.....but now the true effect of all those derivitives is about to unfold....

Bankwest and CBA did a lot of pre-GFC securitisations that are still active.....there are a lot of people out there experiencing mortgage stress and most of them took out loans before 2008.....

Borrower ignorance is key to a successful securitisation..

anyway don't take my word for it...this is a link to the best explanation of securitisation I have come across...We are different to the american system because of the Torrens system of land registration....

http://www.khanacademy.org/science/core-finance/housing/credit-crisis/v/mortgage-backed-securities-i

securitisation is very complex (purposefully) and I have no intention of trying to explain it in full....

cordelia said:

You are correct on all three points (except that I have a gap in my argument)...but my point is that the majority of people think a mortgage and a loan are one in the same when they are most definitely not.

Click to expand...

OK, I understand that, but what is the link to securitisation?

cordelia said:

....Here is an excerpt from the 2010 CBA Swan Trust Securitisation Prospectus:
Here's the reference:
http://www.commbank.com.au/about-us...eries_2010-1_Swan_Trust/IM/Swan_IM_2010-1.pdf

Click to expand...

OK, I'm not a lawyer, but what I understand there is that Bankwest is the servicer of the pool and that they retain the security interest. Elsewhere in the structure, I'm sure there is a mechanism that ensures the trustee has a back to back arrangement with the servicer to benefit from the enforcement proceeds. The other thing I understand is there is a risk that borrowers could attempt to create second liens over the asset, but that risk is partially mitigated by Bankwest agreeeing not to give consent for such security.

I'm not sure I see your point.