A pooling and servicing Agreement (PSA) is a contract created when mortgage loans are bundled into a mortgage-backed security and sold to investors.
What Is a Pooling and Servicing Agreement (PSA)?
When a mortgage is sold, it becomes part of a pool of securitized mortgage loans. After the loans are pooled and sold, the buyer—often a trust—hires a service provider to collect monthly payments and distribute that money to the investors. That securitization agreement is called a pooling and servicing agreement or PSA. The pooling and servicing agreement is filed with the Security and Exchange Commission (SEC), providing the securitization was public.
How Pooling and Servicing Agreements Work
The loan originator, such as the bank or mortgage lender, gathers hundreds of loans into one package. That is the pooling part of the PSA acronym. The originator often bundles loans of a similar type and quality. Your loan is now part of a pool and will become a securitized mortgage loan subject to conditions of the PSA.
A PSA spells out for the homeowner how payments are collected, how mortgage loans may be modified, and the process of foreclosure.
The security is now the owner of the mortgages included in the bundle. The pool of mortgages becomes a marketable security or mortgage-backed security and is sold on the secondary market. Often the purchaser is a trust. Trusts are comprised of investors, who will receive payments from the trust. Just as your mortgage interest went originally to the bank, now it goes to the trust and will becomes part of the payment to the investors in the security. A service provider (hence PSA) handles collection of the mortgage payments and distributes the money to the investors.
The PSA controls what can and can't be done with the trust. It spells out the rights, duties, and obligations of all parties involved. It determines how the servicer is paid and where fees paid on the mortgages will go. A homeowner may want to find the PSA in which their loan has been bundled, especially during foreclosure proceedings.
Types of Pooling and Servicing Agreements
Homeowners whose loans are securitized and face foreclosure or want a loan modification, may benefit from finding their Pooling and Servicing Agreement. It may be part of an investment prospectus, rather than a stand-alone document. If the securitization was conducted in the public market, you can find the documents on the SEC website.
To find your PSA, you will need the name of the original lender and the title of the pool of loans. Finding the title takes some detective work on the SEC website. You can find the name of your lender and the date the loan was made on your promissory note and deed of trust. The date the loan was made is useful in finding your PSA on the SEC website. Search by the name of the lender and find documents filed in the year of your loan. Find the PSA, prospectus, and prospectus supplement.
Once you have found the documents, note their document number and names, and save or bookmark them. You can contact the SEC to obtain a certified copy of the PSA. You may need a lawyer to help analyze it.
When the parties to a short sale cannot understand why the bank would prefer to do a foreclosure over granting a short sale, much of the time the answer can be found in the terms and conditions of the PSA. Sometimes it is more profitable to conduct a foreclosure based on who gets to keep the fees involved with the entire foreclosure process.
- A Pooling and Servicing Agreement (PSA) is created when a mortgage is sold to investors.
- The PSA outlines what can and can't be done with the mortgage security.
- It determines how the mortgage is paid and who collects the funds.
- If the securities sale was made on the public market, a homeowner can find a copy of the PSA on the website of the Securities and Exchange Commission.
- This is important in the case of a foreclosure or short sale.