How to get some of your monthly mortgage payment paid back to you

There is an indirect way to get some of the monthly mortgage payment you make paid back to you.  I'm being a little tricky in my statement but if you keep reading it will be worth it.  To learn how to get some of your money back you have to understand how the game is played.

After you get the keys to your house you are notified who you will be paying your mortgage payment to each month.  So you believe that the bank accepting your monthly payment owns your mortgage.  Right?

WRONG

Two things happen when your loan closes and you get the keys to your home.

1. A bank buys the servicing rights from the lender who closed your loan or that bank services the loan themselves.  Servicing means they deal with the customer directly. They collect your monthly payment, manage your escrow account and take your phone calls when you have a problem or question.
2. An investor buys your mortgage note from the lender who closed your loan.  They buy the note, pay a small fee to the bank servicing the loan and keep the rest of the interest you pay each month.

The lender that closed your loan most likely borrowed the money from a commercial bank who has allowed them a line of credit, usually in the millions of dollars.  When you locked in your rate the lender withdrew the money from that credit line.  Much like an equity line of credit.  They only pay when they draw money and stop paying interest when they pay the money back.  The line of credit doesn't close.  Money is borrowed from it and it gets paid back when your loan closes and gets sold for a profit.

The mortgage note is converted into a security (bond) so that it can be sold to an investor on the bond market.  This means a bond rating agency will review the mortgage loan file, issue their opinion of the bond's rating (A is good, B is not as good C is below average etc.).  Once the bond is rated it gets sold on the bond market much like a stock.

So who are these investors that buy the mortgage loans that are sold to them as a mortgage bond or as we call them mortgage backed security (MBS)?  Most of us who invest in 401k's IRA, mutual funds etc.  Most of these investments include mortgage backed securities in their bond portfolio.  So how do you get some of the money back?  Buy mortgage backed securities or buy into a mutual fund made up of mortgage backed securities.  The profit you make will help offset the money you pay each month.