Use option 2 since you must report the name/address/SS# of the payer since you are holding a mortgage. The payer must report YOUR name/address/SS# on their Sch A if they want to deduct the mortgage interest they are paying you. Doing this cross references the payments from them to you for the IRS.
Use option 1 only if you are holding a loan that is NOT for a mortgage where you are holding the paper/lien.
