While originators were formally the usual servicers of the loans they originated, this is no longer universally, or even generally, the case.

Now, the servicing rights to loans are easily and widely bought and sold, with originators discovering that they can avoid the volatility associated with servicing, such as varying prepayment rates by borrowers, by transferring the servicing rights to a company that, because it specializes in servicing, can derive greater profit from those rights.

Small lenders in particular often sell their loans “servicing released,”

meaning that the buyer of the loans also obtains the servicing rights to them.

Steven Levine and Anthony Gray assert that “[o]riginators typically endorse and deliver notes to issuers,” noting that “in the absence of such endorsement and delivery, the transferee would be the owner of the note but not the holder and, therefore, not a holder in due course.” The Kravatt treatise on securitization describes in detail the efforts that a securitizer of residential mortgages should take to become a holder in due course and further notes, “If a note is negotiable, the simplest way to transfer an ownership interest in the note is to negotiate the note by delivering it to the pool entity if the note constitutes bearer paper, or endorsing it and delivering it, if the note constitutes order paper.”

While there may well be securitizers who do not ensure that each note is indorsed to a new holder, the GSEs that have been the driving engines of securitization, by and large, require that the notes be endorsed before they can be securitized. For example, Freddie Mac’s Single-Family Seller/Servicer Guide requires a seller to endorse notes delivered to Freddie Mac without recourse and states “If the Seller is not the original payee on the Note, the chain of endorsements must be proper and complete from the original payee on the Note to the Seller.” The document custodian handling this volume of documentation is required by Freddie Mac to “verify that the chain of endorsements is proper and complete from the original payee on the Note to the Seller delivering the Note to Freddie Mac–not to the Servicer.” Fannie Mae requires the lender to endorse the note in blank, without recourse, and that the “last endorsement on the note should be that of the mortgage seller.” Even Ginnie Mae’s recent streamlined document requirements still requires that a “complete chain of endorsements up to the pooling of the loan must be evident,” though after the note is endorsed in blank when the note is placed into a Ginnie Mae pool, further endorsements are not required.