Who Pays?

The answer to this question is the “obligor”. Who is obligated to make the payments?

When an individual take a mortgage, and it is held by the bank as a loan, current bank regulations define the obligor as the individual that takes a mortgage.  However, when a mortgage is made to an individual through a security, the definitions are currently are being misread and the obligor is being designated as the security the mortgages are held in.  This difference in definition is huge and is magnified if the mortgage begins to decline in credit-worthiness.

When a group of mortgages are legally wrapped into a security(securitization) they still are just a pool of individual mortgages, that are individually identifiable.  The pool is securitized into a Mortgage backed security (MBS). The MBS is merely a financial vessel that holds the individual mortgages. The MBS is a pass through entity.

In a mortgage backed security, who pays? Who is the obligor? The answer is the individual mortgage holders(homeowners).  The accounting and regulatory treatment of mortgages held as loans, or held in an MBS should be the same, since the obligor is the same.  The regulatory recognition that the mortgage holder(homeowner) is the obligor would make realistic definition of “who pays?”