A Pooling and Servicing Agreement (PSA) is the legal document that lays out the rights and obligations of specific parties over a pool of securitized mortgage loans. Read on to learn more about what a “securitized” mortgage loan is, how mortgage loans are securitized, and how the PSA relates to the securitization transaction.
To understand PSAs, you first must understand basic mortgage transactions and the securitization process. Most people who take out a home loan sign a promissory note and a mortgage (or deed of trust). A promissory note is basically an IOU that contains the promise to repay the loan, as well as the terms for repayment. The mortgage (or deed of trust) provides security for the loan that's evidenced by a promissory note.
In a process called securitization, multiple loans—including both the promissory note and the mortgage—with similar characteristics are pooled, often held in a trust, and then sold in the secondary market.
The PSA is the contract that governs the relationship between the various parties in the securitization process and controls what can and can't be done with the trust.
The PSA will state (among other things):
For example, the PSA might describe the servicer’s compensation. Often, the servicer is entitled to retain the late charges, nonsufficient funds (NSF) fees, reconveyance fees, assumption fees, or other fees that it collects.
The PSA will likely also carefully describe the loan servicer’s responsibilities pertaining to collecting payments, handling loss mitigation (including the authority to modify loans), and foreclosure.
If the securitization is public, the PSA will be filed with the Securities and Exchange Commission (SEC) and you can usually find a copy on EDGAR (Electronic Data Gathering, Analysis, and Retrieval) at www.sec.gov.
Not all trusts are listed with the SEC so you might not be able to find the PSA related to your loan using this method.
PSAs are very complicated and can be hundreds of pages long. If you are facing a foreclosure and your loan has been securitized, consider talking to an attorney to help you understand the intricacies and the issues surrounding securitization as it pertains to your individual situation.
A foreclosure attorney can also explain different options that might be available to prevent a foreclosure and can tell you if you have any defenses to the foreclosure.