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Mortgage Assignment Laws and Definition

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  What is a Mortgage Assignment?

A mortgage is a legal agreement. Under this agreement, a bank or other lending institution provides a loan to an individual seeking to finance a home purchase. The lender is referred to as a creditor. The person who finances the home owes money to the bank, and is referred to as the debtor.

To make money, the bank charges interest on the loan. To ensure the debtor pays the loan, the bank takes a security interest in what the loan is financing — the home itself. If the buyer fails to pay the loan, the bank can take the property through a foreclosure proceeding.

There are two main documents involved in a mortgage agreement. The document setting the financial terms and conditions of repayment is known as the mortgage note. The bank is the owner of the note. The note is secured by the mortgage. This means if the debtor does not make payment on the note, the bank may foreclose on the home. 

The document describing the mortgaged property is called the mortgage agreement. In the mortgage agreement, the debtor agrees to make payments under the note, and agrees that if payment is not made, the bank may institute foreclosure proceedings and take the home as collateral .

An assignment of a mortgage refers to an assignment of the note and assignment of the mortgage agreement. Both the note and the mortgage can be assigned. To assign the note and mortgage is to transfer ownership of the note and mortgage. Once the note is assigned, the person to whom it is assigned, the assignee, can collect payment under the note. 

Assignment of the mortgage agreement occurs when the mortgagee (the bank or lender) transfers its rights under the agreement to another party. That party is referred to as the assignee, and receives the right to enforce the agreement’s terms against the assignor, or debtor (also called the “mortgagor”). 

What are the Requirements for Executing a Mortgage Assignment?

What are some of the benefits and drawbacks of mortgage assignments, are there any defenses to mortgage assignments, do i need to hire an attorney for help with a mortgage assignment.

For a mortgage to be validly assigned, the assignment document (the document formally assigning ownership from one person to another) must contain:

• The current assignor name.
• The name of the assignee.
• The current borrower or borrowers’ names. 
• A description of the mortgage, including date of execution of the mortgage agreement, the amount of the loan that remains, and a reference to where the mortgage was initially recorded. A mortgage is recorded in the office of a county clerk, in an index, typically bearing a volume or page number. The reference to where the mortgage was recorded should include the date of recording, volume, page number, and county of recording.
• A description of the property. The description must be a legal description that unambiguously and completely describes the boundaries of the property.

There are several types of assignments of mortgage. These include a corrective assignment of mortgage, a corporate assignment of mortgage, and a mers assignment of mortgage. A corrective assignment corrects or amends a defect or mistake in the original assignment. A corporate assignment is an assignment of the mortgage from one corporation to another. 

A mers assignment involves the Mortgage Electronic Registration System (MERS). Mortgages often designate MERS as a nominee (agent for) the lender. When the lender assigns a mortgage to MERS, MERS does not actually receive ownership of the note or mortgage agreement. Instead, MERS tracks the mortgage as the mortgage is assigned from bank to bank. 

An advantage of a mortgage assignment is that the assignment permits buyers interested in purchasing a home, to do so without having to obtain a loan from a financial institution. The buyer, through an assignment from the current homeowner, assumes the rights and responsibilities under the mortgage. 

A disadvantage of a mortgage assignment is the consequences of failing to record it. Under most state laws, an entity seeking to institute foreclosure proceedings must record the assignment before it can do so. If a mortgage is not recorded, the judge will dismiss the foreclosure proceeding. 

Failure to observe mortgage assignment procedure can be used as a defense by a homeowner in a foreclosure proceeding. Before a bank can institute a foreclosure proceeding, the bank must record the assignment of the note. The bank must also be in actual possession of the note. 

If the bank fails to “produce the note,” that is, cannot demonstrate that the note was assigned to it, the bank cannot demonstrate it owns the note. Therefore, it lacks legal standing to commence a foreclosure proceeding.

If you need help with preparing an assignment of mortgage, you should contact a mortgage lawyer . An experienced mortgage lawyer near you can assist you with preparing and recording the document.

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What Is Assignment of Mortgage: What You Need to Know

We will explore the idea of mortgage assignment in this thorough guide, going over its definition, steps involved, potential consequences, and more. So read on to learn more about this important facet of the real estate market, whether you’re a homeowner, a prospective buyer, or just inquisitive about mortgages.

What is Assignment of Mortgage?

The assignment of mortgage, often simply referred to as mortgage assignment , is a legal process that involves the transfer of a mortgage loan from one party to another. This transfer typically occurs between mortgage lenders or financial institutions and is a common practice within the mortgage industry.

The Key Parties Involved

• Assignor: The person transferring the mortgage is known as the assignor. The initial lender or financial organization that gave the borrower the mortgage loan is often the assignor.
• Assignee: The assignee is the party receiving the mortgage assignment. This could be another lender or financial institution that is buying the mortgage, often as part of a financial transaction.
• Borrower: The borrower is the individual or entity that initially took out the mortgage loan to finance the purchase of a property.

Why is Assignment of Mortgage Necessary?

Assignment of mortgage occurs for various reasons, and it serves specific purposes for all parties involved.

1. Loan Portfolio Management

Mortgage assignment is a common practice used by lenders to better manage their loan portfolios. Lenders might raise funds to offer more loans or issue new mortgages by selling or transferring mortgage loans to other financial organizations. This procedure aids in keeping their portfolios risk-balanced and liquid.

2. Risk Mitigation

Lenders may also assign mortgages to mitigate risk. When they transfer a mortgage to another entity, they are essentially transferring the associated risk as well. This can be a strategic move to reduce their exposure to potential defaults or financial instability.

3. Secondary Mortgage Market

The secondary mortgage market plays a significant role in the assignment of mortgages. Many mortgages are bundled together into mortgage-backed securities (MBS) and sold to investors. Assignment of mortgages allows lenders to participate in this market, which provides additional funding for new mortgage loans.

The Assignment of Mortgage Process

The process of assigning a mortgage, or deciding to sell your mortgage , involves several steps and legal requirements. Here’s a breakdown of the typical process:

1. Agreement between Parties

The assignor (original lender) and assignee (new lender or investor) must enter into a formal agreement outlining the terms and conditions of the new mortgage assignment. This agreement includes details such as the transfer price, terms of the loan, and any specific warranties or representations.

2. Notice to the Borrower

Once the agreement is in place, the borrower is typically notified of the assignment. This notice informs them that the servicing of their mortgage, including collecting monthly mortgage payments, will now be handled by the assignee. The borrower is advised to send future payments to the assignee.

3. Recordation

In many jurisdictions, mortgage assignments must be recorded with the appropriate government office, such as the county recorder’s office. This recordation provides public notice of the transfer and ensures that the assignee has a legal claim on the property.

4. Continuation of Monthly Mortgage Payments

For the borrower, the most noticeable change is the address where monthly payments are sent. Instead of sending payment to the original lender, the borrower will send them to the assignee. It is crucial for borrowers to keep records of these changes to avoid any confusion or missed payments.

Implications of Mortgage Assignment for Borrowers

While the assignment of mortgage primarily involves lenders and investors, it can have implications for borrowers as well. Here are some important considerations for borrowers:

1. No Change in Loan Terms

Borrowers should be aware that the assignment of mortgage does not change the terms of their loan. The interest rate, monthly payments, and other loan terms remain the same. The only change is the entity to which payments are made.

2. Proper Record-Keeping

Borrowers must maintain accurate records of their mortgage payments and correspondence related to the assignment. This helps ensure that payments are correctly credited and can be vital in case of any disputes or issues.

3. Communication with the New Lender

If borrowers have questions or concerns about their mortgage after the assignment, they should reach out to the new lender or servicer. Open and clear communication can help address any issues that may arise during the transition.

4. Property Taxes and Insurance

Borrowers are still responsible for property taxes and homeowner’s insurance, even after the assignment of mortgage. These payments are typically not affected by the transfer of the loan.

The Role of Mortgage Servicers

Mortgage servicers play a crucial role in the assignment of mortgage process. This section will explore the responsibilities of mortgage servicers, their relationship with borrowers, and how they manage mortgage loans on behalf of investors or lenders.

Legal Requirements and Regulations

Assignment is subject to various legal mortgage requirements and regulations that vary by jurisdiction. Discussing these legal aspects will help readers understand the legal framework governing the assignment of mortgages in their region and how it impacts the process.

Impact on Credit and Credit Reporting

The assignment of mortgage can have implications for borrowers’ credit reports and scores. Explore how mortgage assignment can affect credit histories, reporting by credit bureaus, and what borrowers can do to protect their credit during and after the assignment.

Assignment of Mortgage vs. Assumption of Mortgage

Differentiating between assignment of mortgage and assumption of mortgage is important. This section will explain the key differences, where one party takes over the mortgage and liability, while the other party merely transfers the loan to a new lender.

Impact on Property Taxes and Insurance

Taxes and insurance are essential components of homeownership. Explain how the assignment of mortgage may affect property tax payments and the homeowner’s insurance policy, as these are often escrowed into the monthly mortgage payment.

Potential Challenges and Disputes

Discuss common challenges or disputes that can arise during or after the assignment of mortgage, such as miscommunication, incorrect payment processing, or disputes over ownership rights. Offer advice on how to handle and resolve these issues.

Foreclosure and Default Scenarios

In the unfortunate event of mortgage default, understanding how the assignment of mortgage affects foreclosure proceedings is crucial. Explain how the assignee handles foreclosures and what options are available to borrowers facing financial difficulties.

Future Trends and Innovations

Explore emerging trends and innovations in the mortgage industry related to the assignment of mortgages. This could include the use of blockchain technology, digital mortgages, or other advancements that may impact the process.

In the complex world of real estate and mortgage financing , the assignment of mortgage plays a pivotal role in the movement of funds and management of risk. It allows lenders to efficiently manage their portfolios, mitigate risk, and participate in the secondary mortgage market. For borrowers, understanding the process and implications of mortgage assignment is essential to ensure the smooth continuation of their monthly mortgage payments.

As you navigate the world of homeownership or consider entering it, remember that the assignment of mortgage is a routine occurrence designed to benefit all parties involved. By staying informed and maintaining open communication with your lender or servicer, you can ensure that your mortgage loan remains a manageable and secure financial commitment.

In summary, purchase of mortgage is a vital mechanism within the mortgage industry that facilitates the transfer of mortgage loans from one party to another. This process helps lenders manage their portfolios, mitigate risk, and participate in the secondary mortgage market.

For borrowers, it means a change in the entity collecting their monthly mortgage payments but typically does not alter the terms of the original loan. Keeping accurate records and staying informed about the transition are crucial steps to ensure a smooth experience for homeowners. So, whether you’re a homeowner, lender, or investor, understanding assignment of mortgage is key to navigating the real estate landscape effectively.

This article is for informational purposes only and does not constitute legal, tax, or accounting advice.

Written by Alan Noblitt

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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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Key takeaways

• Mortgage brokers act as go-betweens for homebuyers and lenders, matching borrowers with the right loans.
• Brokers can find and offer borrowers various options, including unconventional loans and loans from banks that don't directly work with the public.
• It's important to interview brokers and understand their specialties and how they're compensated.

Working with a mortgage broker to navigate today’s housing market can be a wise move, especially for a first-time homebuyer . From finding the best interest rate to completing the application to closing the loan on time, mortgage brokers are well-versed in the home-financing experience. Let’s explore what mortgage brokers are, how they work and how they can help you.

What is a mortgage broker?

A mortgage broker is a go-between who matches borrowers with mortgage lenders. If you’re buying a home or refinancing , a broker can help you find the best mortgage for your needs.

They work with everyone involved in the lending process, including real estate agents, underwriters and closing agents. This collaboration ensures a borrower gets the best loan that closes on time. Mortgage loan brokers also pull the buyer’s credit reports, verify their income and expenses and organize the loan paperwork. Many brokers can access a powerful loan-cost system, as well, which prices a mortgage loan across many lenders at once, thereby streamlining the process.

“A mortgage broker not only helps you get the most competitive rates and pricing, they also help make sure your loan is a good match with the particular lender,” explains Andrew Weinberg, principal at Silver Fin Capital Group in Great Neck, New York. “They can quickly determine the best lender for each individual borrower.”

Mortgage broker vs. lender vs. loan officer

Both brokers and lenders “offer” loans. The main difference between a mortgage broker and a lender is that a broker doesn’t originate or fund mortgages. Instead, the broker shows the client various options and then works with the chosen lender on the borrower’s behalf to get the loan approved, closed and funded.

The duties of a mortgage broker and a loan officer are similar in that both help the borrower apply for a mortgage. While brokers are independent entities able to work with a variety of lenders, loan officers work directly for a particular mortgage lender. A loan officer is the borrower’s primary contact point if they use a bank, credit union or traditional lender to get a mortgage.

How do mortgage brokers work?

Mortgage brokers act as agents for borrowers, working with many lenders to find them the best mortgage for their situation. Some lenders only work “wholesale” — that is, exclusively through other professionals, not directly with the public — so to have access to their mortgages, a borrower must go through a broker.

But a broker’s job doesn’t stop there. When you apply with a broker, they’ll do the legwork of submitting many applications to lenders for you. They’ll also be able to guide you away from lenders that may have extra fees or other expenses.

Mortgage brokers have a fiduciary responsibility to the borrower. This means that they’re required to work in the borrower’s best interest, not theirs or a lender’s.

How much does a mortgage broker cost?

The broker’s commission (which is usually paid by the lender) varies, but it typically ranges from 0.50 percent to 2.75 percent of the loan principal. Federal law caps broker fees at 3 percent and requires that they not be linked to a loan’s interest rate.

“Most brokers do not charge the borrower anything at all in most scenarios,” says Weinberg. “The compensation paid to the broker by the lender does not add a penny to the borrower’s closing costs, just like the compensation paid by the big banks to their…loan originators doesn’t add to your closing costs.”

“Prior to the [2008] economic downturn, consumers didn’t see how much a broker got paid, but in today’s mortgage climate, the cost of the loan is charged to the borrower and the lender purchasing the loan provides a credit equal to that cost, resulting in no cost to the borrower,” says Rick Masnyk, a branch manager at Network Funding in North Smithfield, Rhode Island.

In the few instances a broker does charge the borrower for their services, borrowers can expect to pay a fee between 1 to 2 percent of the loan principal. Before you commit to working with a broker, ask about fee structure and what you might be responsible for paying, if anything.

Should I use a mortgage broker?

A mortgage loan broker helps all kinds of borrowers get the best deal. This commitment can be especially useful for borrowers with unique circumstances, such as bad credit or a desire to purchase a certain type of property. In addition, a mortgage broker can help you find the best mortgage rate in a rising rate environment.

There’s no reason not to work with a mortgage broker, says Masnyk. Borrowers who use a mortgage broker get the benefit of a more personal experience and having a licensed professional do the legwork for them.

“Working with someone you can see face to face and/or someone your Realtor has used in the past and trusts is always a great source,” says Masnyk.

When deciding if a mortgage broker makes sense for you, consider the benefits and drawbacks of using one:

Pros of working with a mortgage broker

• A mortgage broker can help you save on fees: When you get a mortgage, you’re likely to pay an origination fee , application fee and appraisal fee — just to name a few. A mortgage broker may be able to get the lender to waive some or all of those fees.
• A mortgage broker can save you money on the loan itself: Brokers have access to a broader mix of loans and lenders (including some you wouldn’t have access to as an individual). So they may be able to find a better deal than you could get for yourself.
• A mortgage broker can save you time: Brokers do all the research on rates and fees. They negotiate for you, file the paperwork and keep the application process on track.
• A mortgage broker can save you from making a big mistake: Brokers can help you avoid pitfalls with particular loans: They’ve read all the fine print. They know the differences among lenders and the twists and turns in mortgages.
• A mortgage broker can find the right lender for tricky situations: If your credit history or financials aren’t great or the property you’re buying is unusual, a broker can find a lender who offers more lenient criteria or who specializes in certain types of properties.

Cons of working with a mortgage broker

• Not all lenders work with mortgage brokers: Brokers may not have access to all loan programs at certain financial institutions.
• You might have to pay the broker: Usually, the lender pays the broker fee, but sometimes the borrower assumes the cost.
• There is potential for conflict of interest: If a lender pays a mortgage broker a commission, the broker could favor that lender, and you might not get the best deal available.
• A broker’s loan estimate may not represent the final terms of the deal: Based on the information in your application, the lender may charge a higher rate or fees. The cost of your loan may also be higher than what you expected.

How to find a mortgage broker

Finding a mortgage broker requires some homework. Here are steps you can take to make your choice:

• Research: Ask your real estate agent , friends and family for referrals. Read online reviews and check with the Better Business Bureau for complaints.
• Narrow it down to a few brokers: Consider a broker’s communication style, level of expertise and how they manage their clients’ needs.
• Interview the brokers: Ask plenty of questions and get a feel for how they work and whether they are knowledgeable about the sort of mortgage you’d qualify for.
• Speak with a former client: Ask them for a reference from a few former clients and make sure you speak with them directly.

Ultimately, it’s up to you to find the best mortgage provider, whether through a broker or loan officer, and to shop around for the best rate and lowest costs.

Questions to ask a mortgage broker

• How much do you charge and who pays your fee? The lender usually pays the mortgage broker. Broker fees can show up on the loan estimate or closing disclosure in several ways, so ask in advance to avoid surprises at closing.
• Which lenders do you work with? Most mortgage brokers have a stable of lenders they work with, and not all brokers work with the same lenders. Confirm the broker works with lenders offering the mortgage products you’re interested in.
• How much experience do you have? As a rule of thumb, choose a mortgage broker who has been in the industry for at least three years. If you’re interested in a specific type of mortgage, ask how much experience the broker has with that loan.
• Are you licensed to do business in my state? Check to see if a mortgage broker is licensed through the Nationwide Mortgage Licensing System and Registry . Their NMLS registration number should also be displayed on their website and email signature.
• Do you have references? Ideally, you have found your mortgage broker through a recommendation from a friend, relative or co-worker, but if not, it’s smart to check references. Ask for names and contact information of several recent clients, then ask them about their experience with the broker.
• How do you handle rate locks? A rate lock guarantees you the interest rate you’re quoted for a certain amount of time, even if rates change. A typical rate lock lasts 30 days or 60 days. If the lender permits, you can add a “float down,” which guarantees you a lower rate if rates fall during your lock period. Ask your broker for a loan commitment or preapproval letter from the lender. It should specify the interest rate and points, the date the rate was locked and when the lock expires.

Mortgage broker FAQ

Can you get a mortgage without a broker, do mortgage brokers have conflicts of interest.

Article sources

We use primary sources to support our work. Bankrate’s authors, reporters and editors are subject-matter experts who thoroughly fact-check editorial content to ensure the information you’re reading is accurate, timely and relevant.

“ Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z) ” Federal Register. Accessed on March 15, 2024.

“ Is my broker being paid for getting me a mortgage loan? ” Consumer Financial Protection Bureau. Accessed on March 15, 2024.

“ Shopping for a Mortgage FAQs ” Federal Trade Commission. Accessed on March 15, 2024.

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Purchasing and Mortgaging a Property via an Assignment

(Jan 8, 2021) Whether you’re looking to buy or sell a property, real estate assignments are worth looking into. Read on (or listen) to learn the key points of this unique pathway and understand the mortgage qualification guidelines to complete the transaction.

What is a real estate assignment contract?

Before I get in to the process of how to qualify for a mortgage when assigning a real estate contract, lets first unravel what a real estate assignment is. A real estate assignment is a transaction similar to that of a standard real estate transaction, except rather than being referred to as a buyer and a seller, in an assignment they are referred to as an Assignor and Assignee , the assignor being the seller and the Assignee, the buyer. The main distinction of an assignment contract is the subject item of the assignment.  Rather than being the property itself, the transactional item in an assignment contract is the RIGHT to PURCHASE – the property.  Hence, the original terms and conditions of the original purchase contract remain intact .  The only changes are in ownership and negotiable price .

Why would someone want to purchase a property via an assignment?

• its a way to get into a new property without waiting for a long period of time (typically, assignments are permitted by the builders when the property is nearing completion)
• depending on how far along the process is, you could possibly be involved in choosing the finishes of the property (but consider this a bonus as most of the time, the finishes and customizations have already been chosen or decided upon earlier on)
• Assignable properties are usually a bit tougher to find as they do not have the same marketing allowances as do standard properties.  Therefore, less exposure to potential buyers (this could possibly result in lower pricing )
• There could be some current owners who are looking to get out of their purchase obligation (for whatever reason) and as a result have priced their property lower than comparable’s nearby.  This is even more pronounced today with the pandemic and its varying impact on pre-sale contract holders who may be in scenarios where they need to bail on their purchase obligations.

What should I expect when qualifying for a mortgage for an assignment purchase?

• first of all, not all lenders are on board with assignment purchases.  But the ones that ARE have all the same features and conditions you would expect for a standard mortgage qualification.  You will receive the same interest rate as though you were qualifying for a regular real estate transaction.  Also, the income qualification and credit score requirements all remain the same .
• there will likely be additional documentation that will be required pertaining to the purchase contract and the newly drafted assignment contract (i.e. amendments, addendums, builder disclosures that include their terms & conditions pertaining to the assignment, and so on)
• some lenders will finance only on the original purchase price (which may be a deal breaker for many), but most will finance on the newly negotiated assignment price
• And finally, depending on your loan to value ratio, appraisals will be required on a case by case scenario…and that’s it!

Some other things to be aware of:

• Align yourself with a complete real estate team that is familiar with assignment contracts and purchases (realtor, solicitor, mortgage broker ).  A multi-member support team will enhance the due diligence, further protecting you from any unexpected twists that may arise after you release conditions on the deal
• Don’t assume that all pre-sale condos are assignable … many are not .  And even for those that are, be aware of any unique assignment terms or fees of the builder.  An experienced realtor will be able to identify any challenges or issues early on, rather than later (when it’s too late!)
• An assignment cannot proceed without the written consent and/or permission of the seller (for resale homes) or builder (for pre-sale condos)
• For resale home assignments the seller is entitled to 50% of the profit .  For pre-sale assignments, builders charge a fee in the range of 1% and as high as 5%

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You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

How to Find a Mortgage Broker

Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page. Our opinions are our own. Here is a list of our partners .

When financing a home purchase, a mortgage broker is like a matchmaker in a relationship: They can help you find a lender with the best mortgage for your needs, secure a competitive interest rate and save you time and money.

But just like a good matchmaker can make a big difference in finding the right partner, you’ll want to choose the right person to partner with when financing a home. While a mortgage broker isn’t essential to the homebuying process, you may find their guidance helpful. Follow these steps to find the right mortgage broker for you.

» MORE: See the best mortgage lenders

Conduct research

As with any important financial decision, thorough research is the first step to making sure you choose wisely. Here's how to get started:

Reach out to friends and family. Ask your family and friends if they have used a mortgage broker. Were they satisfied with the service they received? Was the broker knowledgeable and attentive?

Get referrals from your real estate agent. Your real estate agent should have a pulse on local mortgage brokers in your area and be able to recommend qualified individuals. Real estate agents make a commission after a home is sold, so they have a vested interest in recommending a good broker.

Read online reviews. Read reviews on Google or Yelp to get a better understanding of the kind of experience you could expect from your candidates. For example, how long did it take for the customer's loan to be approved? If there were any stumbling blocks in the transaction, how did the mortgage broker deal with them? You should also pay attention to what reviewers are saying about the mortgage broker's skills in communication, organization and problem-solving (or lack thereof).

You can verify if a mortgage broker is licensed by checking your state regulator or the Nationwide Mortgage Licensing System & Registry. The Better Business Bureau can also indicate if there have been any complaints about the broker and whether those issues were resolved.

Compare brokers

Just as NerdWallet recommends shopping around when comparing mortgage lenders , you should do the same when choosing a mortgage broker. After doing your research, narrow down your list to at least three candidates. Then, ask them these questions:

What types of products do you offer? One benefit of working with a mortgage broker is that they partner with many lenders and provide borrowers with various mortgage options. But just like with a lender, a mortgage broker may not have access to every loan type. So if you are interested in a specific one, make sure the broker offers that option.

What lenders do you work with? A mortgage broker may work with a set of preferred lenders, potentially limiting the savings you could expect from shopping around. Some lenders don’t work with brokers at all, meaning that it may be in your interest to do some lender research on your own. If you want a connection to a specific lender, make sure your broker can offer it — or point you in a similar direction that might be a good fit.

What are your fees? Mortgage brokers are required to disclose their fees . Typically, they are paid 1% to 2% or more of the loan amount as a salary or commission (by law, the maximum fee mortgage brokers can charge is 3% of the loan amount). Mortgage brokers can either be paid by lenders or borrowers, but they can't be paid by both parties. If the borrower pays the fee, it can be paid upfront or rolled into the loan amount. You can avoid mortgage broker fees altogether if you choose not to work with a broker and instead find a lender yourself.

Are you experienced working with borrowers in my situation? Find out if the mortgage broker has worked with borrowers who match your specific needs, such as having bad credit or wanting a particular type of loan. Of course, there's no guarantee the mortgage broker will get you the best deal, but if they're familiar with your situation, they might offer money-saving options you haven’t considered. 

If you have a problematic credit history and know that you’ll want to focus on lenders with flexible requirements, you can start with NerdWallet’s list of the best mortgage lenders for low or bad credit score borrowers .

Make sure you’re financially prepared

A mortgage broker can make getting a home loan easier by connecting you with a lender. But you can also make the entire process smoother by ensuring you are financially prepared before selecting your mortgage broker.

To get started, pull your credit report . You can access yours from all three credit reporting bureaus — Experian, Equifax and TransUnion — at AnnualCreditReport.com for free each year.

It also helps to familiarize yourself with some common types of loans and get an idea of what may be a good fit. Do you have limited savings for a down payment? Maybe a loan insured by the Federal Housing Administration — called an FHA loan — is right for you. Do you prefer an aggressive strategy for paying down debt? You may want to consider a 15-year loan. The more you know about what you want and what you can realistically afford, the more productive your conversations with the mortgage broker can be.

Speaking of which, you can also prepare by figuring out how much house you can afford with a home affordability calculator , which considers your income, debts, and how much money you have for a down payment .

You can also begin compiling documentation the broker may need. These documents may include personal information like your Social Security number, driver's license, and financial information such as recent bank statements, federal tax returns, and W-2 forms.

Choosing the right lender can ensure that you get the best available deal on your mortgage. A knowledgeable and experienced broker who understands your needs can present a range of options for you to compare, making the mortgage application process much smoother — and potentially saving you thousands of dollars over the life of the loan.

On a similar note...

• Mortgage Bankers vs. Mortgage Brokers: What’s the Difference?
• Mortgage Basics
• Life at WMC
• In the News
• Market and Industry
• Agent Resources

If you’re planning to buy a home, it’s helpful to understand the distinctions between a mortgage banker and a mortgage broker, so you can make the best decision for your home financing needs.

Are you thinking of buying your first home soon ?

Or maybe you’ve purchased a home in the past, but it’s been a while, and you want a refresher on your options for home financing .

You may be wondering… what’s the difference between a mortgage banker and a mortgage broker — and which should you choose for your loan?

Depending on your situation, there are advantages and drawbacks to either option.

The key difference between the two? Mortgage bankers directly loan you the money for a home; mortgage brokers serve as an intermediary, meaning they don’t approve your loan or directly provide the money for your mortgage — instead, they coordinate with the lender or bank on your behalf.

Pros of a Mortgage Broker

Each mortgage broker operates a little differently but, in general, here are some of the benefits you can expect if you decide to work with a mortgage broker:

Support with Paperwork

A broker can help guide you by specifying exactly what you need to provide in terms of documentation; because they work one-on-one with you, they’re less likely to request the same document twice, which may happen with a larger mortgage banker where multiple departments or employees are involved.

Loan Variety

Brokers may have more access to a variety of loans (since they’re not working with only one bank or lender), which could ultimately give you more options.

Challenging Situations

A mortgage broker may have more options if you have a less-than-favorable circumstance (for example, other lenders won’t qualify you for a loan because of a low credit score, lack of down payment, etc.).

Delegate Responsibility

A broker often allows you to be more “hands off” during the loan process, because they take on the bulk of the responsibility (for communicating with the lender, etc.). This may also save you some time.  

Pros of Mortgage Banker

A mortgage banker also offers unique benefits, such as:

No “Middleman”

Since you’re working directly with the lender, they are more likely to be 100% familiar with their loan products and can address any issues or challenges immediately.

In-House Operations

Mortgage bankers often have an in-house operations team; in most cases, this will streamline the loan process, since there isn’t an intermediary or outside source that needs to weigh in on paperwork, decisions, etc. 

Potential to Save Money

In many situations, working with a banker will save you some cash, since mortgage brokers charge a fee for their services; although, in some cases, the lender will pay this fee (this is something you’ll want to check on up front, if you consider going with a broker).

Close Sooner

Compared to a broker, a mortgage banker will often close your loan more quickly (sometimes, even earlier than you anticipated), since they are working with their own loan products and their own in-house staff — and no intermediaries are involved.

Which Should You Choose?

This really depends on your unique situation. If you’re just starting out on your home finance search, it can be helpful to get quotes from a variety of mortgage brokers and bankers.

Overall, if you have a fairly strong financial situation (good credit score, low debt-to-income ratio, etc.), you may save time and money by using a mortgage banker for your loan and avoiding the fees associated with mortgage brokers. On the other hand, there are brokers whose fees are comparable to mortgage bankers.

If you have a challenging or unique situation, such as a lower credit score, no down payment, or a high debt-to-income ratio , a mortgage broker might be better equipped to find a loan program for you. However, many mortgage bankers also offer loans for people with less-than-perfect financial circumstances.

Again, it will take some research to find your best option. That’s why it’s important to start early in the process, so you can find the right fit for your home financing needs.

Benefits of a Lender Like Waterstone Mortgage

At Waterstone Mortgage, we offer the best of both worlds. Because we are owned by a bank (WaterStone Bank), we have the security and financial backing of a mortgage banker. However, we operate independently, so we also have a wide variety of loan programs that typical banks usually don’t offer. In these ways, we are pretty unique.

Our clients can benefit from:

• Our in-house operations team (which streamlines communication and often creates a speedier loan process)
• Loan programs for challenging situations ( less-than-perfect credit , no credit , no- or low-down payment options )
• A strong company history (more than two decades in business) and impressive feedback from our customers
• Our innovative technology, such as Element — which makes the mortgage process quicker and more transparent, and is something that no other lender offers

So, although we are technically a mortgage banker, we have many of the beneficial characteristics of both mortgage bankers and brokers.

If you’re interested in learning more about getting a home loan with us, find an experienced Waterstone Mortgage loan originator in your area or apply now .

The Lourantos Group

: 416-505-7975

: [email protected]

A Comprehensive Guide To Selling Your Assignment Condo

Trying to resell your preconstruction condo before closing? This blog is for you. Assignment sales are more complicated compared to their resale counterparts, but with some guidance, the process is easy. 

An assignment sale is a sale where the original buyers of a condo or home resell their contract to another buyer before closing. The most common type of assignment is a preconstruction condo assignment. Preconstruction condo assignments are prevalent because of the time lag between purchasing the home and the move-in date. While condo assignments might be the most popular type of assignment, any real estate contract is assignable. This blog is going to discuss condo assignments since they are the most prevalent, but *most* of the details apply to assigning a home or commercial preconstruction property as well.

In the GTA, our preconstruction market is booming. Toronto alone sees around 30,000 new home completions a year. Around 70% of preconstruction purchasers are investors. The remaining 30% of buyers are end-users who plan to use the property themselves. However, many investors, and end-users, might decide to sell the property before the final closing. Since there is no title to transfer, these buyers have to assign their contract to the next buyer. 

What is a preconstruction condo assignment sale?

An assignment is when the original buyers of a preconstruction condo decide to sell their contract with the builder to another buyer before the home is complete. This differs from a regular real estate transaction because we are not buying or selling a home, rather we are buying or selling an interest in a contract to purchase a home once it’s complete. Essentially, the buyers are taking over the seller’s place in the contract with the builder. The new buyer pays the seller their deposits back, as well as any profit. In trying times, there might not be profit, and in extreme cases, the sellers might walk away from their deposits.

Assignments are like the wild-west equivalent of real estate. The buyers are called assignees, the sellers are called assignors, and there is no fixed closing date! You heard that right, the buyer purchases the contract not knowing whether it will close in 4 weeks, 6 weeks, or 8 weeks. In many cases, the buyers only have a rough estimate for the final closing of the property as well.

Every builder’s agreement of purchase and sale is different, so every assignment sale is different. You need legal and accounting advice before, during, and after an assignment sale. A real estate agent’s job in the transaction is to find a buyer, negotiate the contract, and coordinate the sale from start to finish. Your real estate agent might also connect you with accountants, and lawyers who can help make the necessary legal and tax declarations.

The Builder’s Role In Assignments:

Sellers often misinterpret their rights to assign in their purchase agreements with their builder. In the showroom, builders are quick to say their contract is assignable if you want to flip your contract before closing. However, builders can control when, how, and to whom you sell your contract.

It’s important to follow the rules set out by your builder when marketing your assignment. Deviating from the builder’s purchase contract can result in you losing your deposits!

Since all preconstruction home assignments require the builder’s consent, it’s important to prepare the file for their consent at your earliest convenience. The builder will want the same information they collected from you when you first purchased the home: full names, current address, sin, IDs (front and back), telephone number, emails, mortgage pre-approval letter,  lawyer information… they will also want the buyer to replace all your cheques. Those could be cheques for future deposits, or cheques for interim occupancy fees. It’s important to advise the buyers to prepare all of this information before submitting the file to the builder, so there is limited delay assigning the property.

How do you sell an assignment condo?

The first step to selling your assignment is to review your original purchase agreement. The builder’s purchase agreement outlines restrictions and fees associated with assignments. An experienced realtor or lawyer can also review the contract with you. Next, email your builder’s customer service account and ask for permission to advertise the property for sale.

It’s important to thoroughly understand your preconstruction agreement, because some incentives offered to you might not be transferable to the buyer. Builders often offer incentives to direct buyers to stimulate sales. However, they sometimes make these incentives non-transferable. That could mean the free design dollars, or the capped development levies might not be available to the next buyer. It’s important not to advertise incentives that aren’t transferable.

The second step is to hire a Realtor to advise you on current market conditions. Your realtor will discuss marketing options as well as help you decide on a market price. There is a strong chance the builder will prohibit MLS listings of their properties. However, many builders will allow online marketing in places like Facebook, Instagram, WhatsApp, and brokerage websites.

While Realtor.ca is the best marketing platform out there, buyers looking for assignments know to look elsewhere. Don’t worry if you cannot market on realtor.ca. One of the advantages of Sotheby’s International Realty Canada is our vast marketing platform outside of Realtor.ca

Important Dates:

The first date you need to consider is the assignment closing date. This is the date the assignee officially takes over the contract from the assignor. On average, assignment closing happens within 3-6 weeks after an offer is accepted. This is when the assignee becomes the new owner of the property, and the assignee receives some of their deposit/profit back.

The second date to consider is the interim occupancy date. When buying preconstruction condos, there is usually a period between when the unit is ready for occupancy and before the building has registered with the city. Since no title exists yet, you cannot get a mortgage. Instead, during this time, you move in and pay the builder rent until final closing. Interim occupancy can last from months to years. During interim occupancy, buyers have the chance to view the unit which could help sell the home. Interim occupancy is when most assignment sales take place.

The third date you need to know is the final closing date. This is the date that the building registers with the city and the assignee pays the builder the balance of the purchase price, land transfer taxes, closing costs etc. Sometimes, assignees will negotiate to pay some of the assignors profit on final closing date, so they can roll it into the mortgage.

What Is Negotiable During An Assignment Sale:

Since the contract with the builder is already firm and binding, there can be no changes to that contract. The buyer is merely stepping into the seller’s shoes, in exchange for their deposits and profits. The assignment contract negotiates the purchase price and the deposit structure. The purchase price will indicate how much profit (or loss) the assignor receives in the transaction.

The payment schedule of an assignment is dependent on whether there is a profit or not. If the seller is making a profit or breaking even, then the buyers are expected to refund the full deposit paid-to-date by the sellers. In many cases, that is 20% of the original purchase price. If the seller is losing money on the assignment, then the buyers will bring a deposit for less than the deposits already paid to the seller. The deposit is due upon acceptance of the offer.

If there is profit, the assignee and assignor will negotiate when that profit is paid out. Remember when we mentioned the three important dates? the assignment closing, the interim occupancy date, and the final closing date? well, when it comes to negotiating when to pay the assignor their profit, we usually pick one of these dates to pay out the assignor’s profit.

The expected final closing is an important consideration for buyers when negotiating when to pay the assignor’s profit. The longer the final closing date, the more risk for the buyer. The reason? there is always a small risk the condo developer cancels the project. If a condo developer cancels the project, the buyers are returned their deposits paid-to-date. However, if a buyer has paid an assignor $100,000 in profit, that money is gone. So if there is a long closing, expect buyers to protect their final deposits by delaying it till interim occupancy, or final closing.

Conditions In Assignment Sales

After finding a buyer, the first hurdle to overcome is negotiating a fair deal. Once both parties are satisfied with the terms of the contract, we make the deal conditional on the lawyer’s review. This gives both the buyer and seller a chance to have the assignment contract, as well as the original purchase agreement, reviewed by a lawyer. Once both parties have spoken to their lawyers and are happy to continue, we put the deal to the developer to approve the new buyer. This condition usually lasts around 30 days. If the developer does not approve the new buyer within 30 days, the deal will become null and void, unless the buyer and seller both agree to extend that condition.

Once the developer accepts the buyer, the assignment will happen within a few days. Most contracts outline an assignment closing within 5 business days after the developer gives their consent. Some buyers will also include financing conditions in their assignment offer, so they have time to run the deal past their mortgage broker. However, most assignments are purchased with only lawyer review and developer consent conditions.

Here’s an example of selling an assignment for profit vs selling an assignment for a loss:

Below are four examples of the deposit/profit payment schedule for assignments.

Example 1 is a fantastic example of a preconstruction condo that appreciated $100,000. In this typical example, the assignee and assignor agreed to a deposit big enough to return all of the assignor’s deposits, as well as some extra profit to cover Realtor commissions. This deposit is usually transferred to the listing brokerage within 1 day of the offer being accepted and is released to the assignor on assignment closing. In this example, the assignor and assignee also agreed to pay the seller the rest of their profit at the final closing.

Example 2 shows the same conditions for the sale, except the assignee agreed to pay the assignor their full deposit and all their profit on the assignment closing date, instead of the final closing date.

Example 3 looks at an assignment where the assignor is taking a $100,000 loss. Instead of being paid their whole deposit on assignment closing, they are paid their deposit minus the difference between the purchase price and the sale price.

Example 4 is a rare case, where the market has turned significantly and the assignor is looking to transfer their assignment for $0. This means the assignor is walking away from all their deposits and will take no money to transfer their contract to the assignee.

What Does It Cost To Sell An Assignment condo:

The major fees when selling an assignment include the builder’s assignment fee, real estate commissions, and tax on the profit. Builder’s assignment fees usually range from $1500-$25,000 (in some extreme cases they go as high as $80,000). The assignor usually pays both the assignor and the assignee’s realtor commissions. The commission is something to negotiate with your agent. The total commission is usually 5% or less of the final sale price. There are likely taxes such as income tax, capital gains tax, or HST on the sale as well. Speak to your accountant about taxes due on the assignment sale.

Taxes due on an assignment sale:

The taxes on assignments are simple, however, buyers and sellers often confuse the HST taxes. That’s because there are two different HST taxes when talking about preconstruction assignments. Let’s clarify this! All new homes are subject to HST, however, end-users don’t notice the HST tax because the builder pays it and claims a $24,000 rebate on the end-user’s behalf. Alternatively, investors who purchase a pre-construction home are charged around $24,000 in HST, and are then able to claim a rebate for the HST they paid, if they rent the property out for one year. There are situations where an assignment will lose its eligibility for the HST rebate. If someone has lived in the home during interim occupancy, it will no longer be eligible for the end-user HST rebate.

The second HST tax we discuss when selling an assignment is the HST due on the profit. In many cases, the profit is subject to a 13% HST tax. In some cases, even the return of deposits is subject to HST.

The third tax is the income or capital gains tax on the profit. Any real estate property that is not your primary residence, as well as any business venture, is taxable as either a capital gain or as income. It’s really important to speak to an accountant before selling your assignment. Only an accountant can advise you whether you owe HST, capital taxes, or income taxes on your assignment sale.

Is it better to sell an assignment or wait till the condo is ready?

The pros to assigning a condo:

• Receive your deposits and profit sooner
• Avoid market risks. Savvy investors might look to assign their property if they sense the market might depreciate in the coming months/years.
• Avoid paying closing costs (land transfer taxes, development levies, utility hookups, and more). These usually come to a little more than 5.5% of the purchase price
• No mortgage or financing required
• Minimize holding costs (if you sell before interim occupancy or before final closing, there are no property taxes, maintenance fees, utility fees, insurance, mortgage, etc)

Cons to assigning a condo

• Developer restrictions (limiting the marketing of the property, limiting when they are accepting assignments)
• Market perception and buyer’s hesitancy when buying a property sight-unseen
• Market fluctuations suppressing buyer demand
• Limited buyer pool and most of the buyers are investors who want a good deal
• Usually sell for a lower price than comparable resale properties
• Financing challenges for the buyer if the property does not appraise at the new purchase price
• Potentially more taxes compared to closing and reselling

The most common mistakes when selling an assignment:

Hiring the wrong representation, or not relying on professional advice:.

As active realtors in the assignment market, we come across quite a few mistakes. But most of them could be avoided if the buyers and sellers were represented by experienced realtors and lawyers. The agreement of purchase and sale for an assignment is very different compared to an agreement of purchase and sale for a resale home. One of the most common mistakes we see from buyers and sellers is assuming the paperwork their realtors drafted is correct, and forgoeing their right to have their lawyer review the assignment paperwork.

Poor communication/understanding:

This happened to my assignment buyers recently. They purchased a home where the seller’s representative told us the finishes had not been chosen yet. We protected our buyers by including clauses to that degree. However, a few days after the assignment closing, we learned the sellers chose the finishes a few days before closing. Luckily, the developer allowed the buyer to make changes to the finishes at an additional fee.

Ignoring deadlines or dragging your feet:

Assignments come with a lot of moving deadlines, and there are a lot more parties involved compared to a resale property. Always return paperwork and signatures as soon as possible. Compared to a resale property where the only parties are the buyer, seller, and their agents and lawyers, an assignment involves the developer, the developer’s lawyers, the buyer and seller agents, and the buyer and seller lawyers. If everyone took 3 days to return paperwork, the conditional period would lapse and the deal would become null and void.

Incomplete Buyer Vetting:

Buying an assignment requires the assignee to have their mortgage preapproval, as well as their purchase funds available very shortly. If the assignee does not have a mortgage preapproval on hand, it could delay the developer accepting the assignment. If they do not have their funds available it could delay the quick closing as well.

It’s important to thoroughly vet buyers because some builders require the assignor to close in the rare chance the assignee cannot close.

Misunderstanding fees:

Builder’s contracts are not standard forms, and their deposit structures and closing fees can vary from site to site. There are a lot of potential fees when buying and selling assignments and they include, but are not limited to: deposits, seller’s profits, upgrades, lawyer’s fees, interim occupancy rent, utility set-up fees, development levies, realtor commissions, accountant fees, HST, and income taxes. These fees can vary from deal to deal, and when they are payable is different in every assignment. For example, some developers require the homeowner to pay for upgrades when they are chosen, and others charge for the upgrades at final closing.

If you have a preconstruction condo or home that you are thinking of assigning. Feel free to reach out to us for some advice and insight.

Related posts.

Everything you need to know to sell your preconstruction condo assignment

6 important facts to consider when selling a preconstruction condo.

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Assignment of Trade (AOT) Executions 101

Feb 7, 2024 | Blog , Featured

In the mortgage industry, AOTs (assignment of trade) are an increasingly popular practice among three counterparties: mortgage originators, mortgage investors, and broker-dealers. One of the main benefits of AOT execution for lenders   is the savings of the bid-offer spread on the to-be-announced mortgage-backed security (TBA) trades used to hedge their open mortgage pipeline. With MCT’s recent automation of digital TBA trade assignments , it is now easier than ever to leverage this strategy.   This automation streamlines the process of AOT loan sale executions for all three counterparties which makes for a faster, more convenient, and more accurate transaction. We anticipate further growth of AOT executions beyond the record $20B which MCT lenders executed in 2023.

In this blog post, MCT experts delve into the nature of an AOT execution, the impact of bid tape AOT on TBA positions, how automation has improved the AOT process, and how bid tape AOT affects the best execution strategy . Read on to learn all about the AOT process and why it is a must-have strategy in the current mortgage market climate.

What is Bid Tape Assignment of Trade (AOT)?

• What are the benefits of AOT execution?
• How does modern bid tape AOT compare to legacy AOT executions?
• How does bid tape AOT affect the best execution strategy?
• How does automation improve the AOT process?
• Which investors offer bid tape AOT programs?
• Where are bid tape AOT transactions conducted?

By the Numbers: AOTs by MCT Clients in 2023

Avg. bid/offer spread (bps), avg. client savings ($), total client savings ($m).

Bid tape AOTs are an increasingly popular industry practice that involves three counterparties – mortgage originator, mortgage investor, and broker-dealer  – in which the originator (seller) transfers loan collateral and hedge positions to a mortgage investor (buyer) and all counterparties execute a tri-party agreement.

Once a bid is accepted, the seller transfers ownership of the loans to the investor while simultaneously assigning the corresponding hedge position(s). The tri-party agreement (which is a standard SIFMA agreement) informs the TBA broker-dealer that a particular TBA position will move from the lender’s TBA account to the investor’s TBA account. The mortgage investor then updates the final price of the seller’s loans with an adjustment that offsets the gain or loss on the trade they are being assigned. This allows the lender to avoid having to pair out of the hedge and creates one cash experience since it effectively wraps the hedge gain or loss into the price of the loan being purchased.

Overall, bid tape AOT is an important mechanism for facilitating liquidity and price efficiency in the secondary mortgage market, making it an essential tool for originators and investors who wish to stay competitive.

What are the Benefits of AOT Execution?

Bid tape AOT is an efficient and effective strategy for both originators and investors. Because investors tend to be larger organizations, they can take advantage of their size and ability to pool loans to trade more efficiently. Offering AOT allows them to pass these economics through to their sellers, making them more competitive without having to lower margins, which is an extremely valuable tool given the current competitive landscape.

For sellers, AOT’s provide a way to avoid the bid/ask spread, which is the pricing difference between establishing and closing the hedge.   As volatility and rates have increased over the last two years, some key coupons have become illiquid and as a result, the bid/ask spreads have remained elevated from prior years when the Fed was supporting the market.  This can easily amount to 3 to 9 basis points on par coupons and often much more on higher, less liquid coupons.

Originators and investors that are not leveraging this execution strategy are leaving a substantial amount of money on the table and impacting their P&L. Another advantage with the new bid tape AOT programs is that there are no required trade tolerances on the loans being assigned, which makes it much easier for sellers to assign a larger percentage of their loans.

AOT Benefits for Buyers

• Allows buyers to be more competitive relative to their peers who do not accept AOTs, without having to lower margins
• Sellers place a premium on investors who offer AOT due to the cash benefits in both rising and declining rate environments
• Complete automation of the tri-party agreement helps to streamline the back-office process

AOT Benefits for Seller

• Allows sellers to largely avoid the bid/ask spread on their hedge positions, thus reducing their overall hedge cost
• Creates one cash experience at the time of sale which provides for better cash flows in both rising and declining interest rate environments
• Reduces the need to cross-hedge less-liquid coupons and take on added risk

How Does Modern Bid Tape AOT Compare to Legacy AOT Executions?

Significant technological enhancements have made the AOTs of today more accessible and streamlined compared to legacy AOTs. Historically, it was common for investors to require a 1-2% tolerance on any trade assignment, meaning that a lender had to have a group of loans that totaled somewhere between the trade volume +/- the tolerance. On a $500K trade that is somewhere between $490-510K which is a very narrow window, making it extremely hard for lenders with lower volumes to take advantage.

Investors also used to only allow assigning a portion of a larger trade and would not allow the combination of smaller trades into one, which was another reason it was harder for smaller lenders to take advantage of AOTs. For instance, if you had $2.2M in loans slotting into a FNMA 6 coupon and did not have a corresponding $2M trade, lenders would have had to break up the sale into smaller increments to a tolerance level that could be assigned. With modern bid tape AOT programs, sellers can assign a combination of their smaller trades against that volume and get a weighted-average price.

Fifteen years ago, MCT would have recommended that clients hold off on making smaller trades and wait until there was enough to do a larger trade so that it could be assigned down the road to make the tolerances. With the flexibility of modern bid tape AOT, that is no longer needed and lenders can minimize their risk by making smaller trades throughout the day.

Another big impact on TBA positions with bid tape AOT is the immediate acceptance of the trade.  In the past, investors wanted to see at least half, or even all, of the committed loans delivered before the trade was accepted, but now that is no longer the case. This provides both the originator and investor greater certainty of their position shortly after a sale and drastically reduces the chances for error.

Lastly, as AOTs continue to gain in popularity, lenders are prioritizing their broker-dealer relationships with those who are approved by an array of investors to maximize their assignment potential. This means it is essential for dealers to make sure they are working with a large mix of investors if they wish to stay competitive and in a lender’s constant rotation.

How Does Bid Tape AOT Affect the Best Execution Loan Sale Strategy?

When lenders are evaluating bids from an investor who offers AOTs, it is important for them to consider the cost savings associated with assigning the trade. The best execution strategy for incorporating the bid/ask savings is to adjust the investor’s bid price by the amount saved from not having to pair out of the applicable trade. To get that appropriate amount, adjust the theoretical economic value of the bid/offer savings at the time of sale on the trade being assigned. For the best execution calculation, the goal is to look at the total bid/offer savings of the assigned trade and apply it to the corresponding loans accordingly. These calculations are handled automatically in MCTlive!

If we think about assigning $750K in loan volume and we’re able to assign a $1M trade, we’re relieving ourselves of the cost of $1 million in pair-offs. We’re not getting rid of the pair off, but we’re relieving ourselves of the cost of the bid-offer spread on the $1M. That means a lender’s savings are not going to be just the bid-offer spread on the loan volume, as they are allowing themselves to save the spread on the full $1M. Just like we incorporate an investor’s file fee by adjusting their bid price down for ranking purposes, the net adjusted bid price of loans in an assignment will be biased up by the basis points saved from not having to pair off the trade. This is what allows an investor who offers AOT to be more competitive relative to their peers who do not offer AOT as an option.

During periods of significant market fluctuation where trades can have large gains or losses, lenders may prioritize cash flow and place a higher value on the ability to execute with investors that offer AOTs. When rates have moved up and trades are in the money, lenders who assign their trades receive their cash faster compared to pairing out and waiting until the settlement date, which occurs once each month. On the other hand, when rates have dropped quickly and trades are out of the money, lenders may choose to leverage the AOT to assign away trades with certain broker-dealers in order to relieve mark-to-market thresholds and avoid a potential margin call. In both scenarios where lenders prioritize cash flow management, investors who offer AOT tend to benefit more relative to those who do not, and win more loans even when they do not offer the best price.

How Does Automation Improve the AOT Process?

The original process was to manually enter the trade information into Schedule A of the tri-party agreement, along with the names and signatures of the assignor and assignee before sending it off to the corresponding dealer. Now, with the implementation of E-signatures the entire process is automated for sellers, investors, and brokers/dealers. While efficiency is important, the removal of human error is even more significant. No question that putting the wrong price, volume, or coupon into a tri-party agreement is extremely problematic, causing processing delays, or even worse, a mismatch in positions on notification date.

Another benefit of automation is that the tri-party agreement is transmitted at the time of commitment request. In MCT’s comprehensive loan trading platform, MCT Marketplace , there are four communication points.

• First, the MCT client will post a bid tape to the platform.
• The investor will then upload their bid levels on that bid tape and the best execution analysis will be performed.
• The third data transfer will be a request for a commitment on loans the corresponding investor won.
• The fourth communication will be the confirmation of those commitments returned from the investor.

“During a time of extreme pressure on profit margins industry-wide, we’re proud of the impact AOT automation has had for our lender and investor clients,” shared Justin Grant, Senior Director, Head of Investor Services at MCT. “Based on our conversations with investors who offer AOTs, we estimate MCT lenders represent around ninety percent of AOT executions in the market today.”

Which Investors Offer Bid Tape AOT Programs?

Contact the Investor Services team to view the most up-to-date investor list.

How Agile Supports MCT’s AOT Automation

AOT executions on MCT Marketplace are supported by Agile, a platform that brings lenders and dealers of all sizes together to digitize the historically phone-based communication processes of TBA trading and MBS pooling. 

Automated broker-dealer execution of lender-generated tri-party agreements

Trade blotter for tracking and managing assigned trades, centralized database of record increases data integrity and reduces errors, where are bid tape aot transactions conducted.

Bid tape AOT transactions are conducted in MCT   Marketplace , the largest mortgage exchange for the U.S. secondary market. MCT Marketplace was born out of a need for security in bid tapes and moving away from emails. In this context, it’s provided a strong platform to work with investors to automate the AOT process. There are pieces like the tri-party and the transmission of the trade that are resource-intensive and can also be problematic from a human error standpoint. MCT is proud to be the first organization to automate the tri-party process, as AOTs are providing liquidity and efficiency to the market at a crucial time.

MCT Marketplace connects buyers and sellers in a unique, digital auction regardless of counterparty approval status. Through patent-pending technology, sellers have access to the most robust set of take-outs, while buyers are seamlessly connected to the largest community of sellers in the U.S. This platform is now being used to fully automate the tri-party agreement between the lender, investor, and broker/dealer in AOT transactions. AOT automation within MCT Marketplace is rapidly changing the best execution landscape.

Conclusion: Take Advantage of AOT

In conclusion, assignment of trade (AOT) is a growing trend in the mortgage industry that offers many benefits for mortgage originators, investors, and broker-dealers. By automating and streamlining the process, lenders can easily leverage AOTs to save money and more efficiently manage their cash flows, while buyers can become more competitive in the market.

The bid tape AOT strategy allows buyers to be more competitive and allows sellers to reduce hedge costs by avoiding the bid/ask spread on their hedge positions. Overall, AOT offers a convenient and cost-effective solution for mortgage professionals, and its use is likely to continue growing in the future.

Bid tape AOT programs at MCT are supported in MCT Marketplace; the only marketplace with complete automation of the pricing calculations and tri-party agreements involved in the AOT process.

MCT’s Investor Services division offers a software suite of tools for correspondent investors that facilitate offering and automating an AOT channel. MCT automates the process of pricing bid tapes with our embedded bid tape pricing tools. Investor Analytics within MCT provides you with unique reporting designed to optimize pricing and win market share.

Contact Our Team to Learn More

Interested in learning more about how bid tape AOT may impact your cash flow and execution?  Contact us today  for a one-on-one consultation with a secondary marketing expert.

Related Articles

• Housing Market Predictions 2024: Will Housing Prices Drop?
• MCT Whitepaper: Mortgage Pipeline Hedging 101
• How the 10-Year U.S. Treasury Note Impacts Mortgage Rates

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30% of real estate transactions are not done after the purchase decision has been made. That’s why we maintain a constant dialogue with the buyer, lawyers, mortgage brokers and designers, to study the needs and implement the solution.

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Club city on the river

Volokolamskoe sh., vl. 71/12

Moskvoretsky Park is a 5-minute walk away. In 10 minutes by car - the parks Shodnya, Pokrovskoe-Streshnevo and Stroginsky. A grandiose sports infrastructure is planned on the territory of the peninsula: more than 30 types of activities in one location and three yacht clubs in the neighborhood.

Community participation

PR and Media

Kalinka is in the TOP-3 in terms of citation in  the media in the elite real estate market and in the TOP-5 of business class and investment segment. Monthly number of publications mentioning Kalinka  — 250-300. Main sources: RBC, Forbes, Vedomosti, Kommersant, BFM, Elitnoe.ru. Joint analytics and press releases with leading Moscow developers: Insigma, AEON, Level Group and others. The Kalinka press service is always open to the media: journalists can be sure of comments, interviews and expert opinions. We promptly respond to requests and help the editors in the preparation of objective and high-quality materials.

A fifth of the entire interior improvement in the premium segment is created in the area of Minskaya Street

According to research of the Kalinka Ecosystem, the total area of internal landscaping in 40 projects on the premium real estate market in Moscow is 43.5 hectares.

Russians remain the leaders in buying Turkish real estate

Russians still occupy the first place in the demand for real estate in Turkey among foreigners. However, compared to 2022, there is a decrease in demand from our fellow citizens by 17%.

"Obydensky No. 1" became the best-selling club house in Moscow

According to a study of the Kalinka ecosystem, sales in 11 club houses started in the capital in 2023. The leader in sales was the club house "Obydenskiy No. 1", in other projects clients purchased on average four times fewer apartments.

The Kalinka ecosystem has summed up the results of its first year of operation in the UAE.

The Kalinka ecosystem has strengthened its top management team.

In two regional divisions of the company - Kalinka Turkiye and Kalinka Middle East - new sales directors have been appointed.

Kalinka Middle East has received several awards from a leading developer in Abu Dhabi.

The company won in several nominations as a developer of Aldar Properties and has been included among the best real estate agencies in Abu Dhabi.

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CEO of International consulting company Kalinka

Alexey Chumalov

General manager of Kalinka Moscow

Alexander Shibaev

General manager of Kalinka Middle East

Yulia Kovaleva

City real estate manager

Polina Medelyanovskaya

Denis Trusov

Dmitry Mezhinsky

Mikhail Dolgov

Head of Country Property Department

Mortgage Broker

Mortgage broker is an intermediary that brings mortgage borrowers and mortgage lenders together, but isn’t going to use its own funds to come mortgages. A mortgage broker gathers paperwork coming from a borrower, and passes that will paperwork along to some mortgage lender regarding underwriting and agreement. The mortgage resources are then lent in the name of the mortgage lender. A mortgage broker collects an origination fee or any yield spread premium from lender as compensation because of its services.

Common Managerial Finance Functions

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