Why are you selling my mortgage?
After you purchase your home, the chances are pretty good that your home loan will be sold. While you may be apprehensive about this, there is nothing to fear: the only change you should notice is a different address to send payments.
Why are mortgage loans sold?
Lenders have to maintain certain minimum capital requirements, meaning funds must be available to cover various financial obligations that may arise. When your mortgage is sold to another institution, the lender is clearing its credit lines, allowing it to lend money to the next borrower. Understand, no matter what type of lender you choose to do business with, it’s likely your loan will be sold.
Will the terms of my loan change if sold?
The terms of your mortgage were agreed upon the day you closed your loan. You signed a Note and Deed of Trust as part of your mortgage closing package, and they specify the terms of your agreement with the lender:
This is your promise to repay your loan, the amount you’ve borrowed, the interest you will pay and the term of your loan.
Deed of Trust
Your deed outlines ownership rights to the property and is used to transfer property from one person to another. It is this document that protects your lender if you default on your loan.
Signing these documents guarantees the rate and terms of your loan. No matter how many times your loan is sold, these terms will not change.
What exactly is being sold?
If your lender is going to sell your loan, they will sell one of two things:
- Servicing: Your lending institution can just sell the servicing of your loan yet continue to make money from the interest you pay.
- Interest and servicing: Your financial institution can sell your loan and the servicing of your loan.
Selling loan servicing
If only the servicing of your loan is sold, your original lender will keep your loan and continue to make money from the interest you pay.
The servicing of a loan includes customer service, payment management, escrow disbursement, collections, foreclosure proceedings and working with delinquent homeowners. Your lender will authorize servicing companies to manage these issues so they don’t have to spend the time and money to handle them.
This is a real cost benefit for the lender, even if the per-loan savings isn’t significant. For example, a lender may save $400 per year per mortgage after selling the servicing of your loan, and though these savings may seem minimal, if you multiply 400 by thousands of loans, it’s substantial.
Lenders take the servicing of your loan very seriously, as customer service and account accuracy is of utmost importance. If your lender sold your mortgage and you’re not happy with the new servicing company, you should contact the lender and try to resolve any issues.
Selling the loan and servicing
There are many steps involved in selling a mortgage loan, so it’s best to begin with the basics and gain a better understanding of how certain financial institutions are structured.
The players in the primary market are banks, bankers, brokers, and credit unions, among others. These financial institutions sell mortgage loans directly to homeowners, and are generally less likely to sell your loan. This is not to say your loan will never be sold, but these financial institutions typically keep and service their own loans.
The players in the secondary market are nationwide lenders like Guaranteed Rate, federal agencies like Fannie Mae and Freddie Mac, and other institutions such as pension funds and insurance companies.
Secondary market lenders not only sell mortgage loan products directly to homeowners on the primary market but also buy, sell and service mortgages in the secondary market. Federal agencies such as Fannie Mae and Freddie Mac buy mortgages from both the primary market and nationwide lenders. Neither of these agencies sell mortgage loans directly to homeowners; they only purchase loans.
What happens to my loan in the secondary market?
Some national lenders may keep your loan and service it or it may sell only the servicing. Federal agencies play a bigger role in the buying of mortgage loans and the impact these purchases have on mortgage rates.
Fannie Mae and Freddie Mac are the biggest buyers of mortgage loans and this is why your loan officer must be mindful of their guidelines, because there is a very good chance your loan will be purchased by either institution on the secondary market. To be clear, Fannie Mae and Freddie Mac do not lend money—they buy mortgages.
From their purchased pool of loans, Fannie and Freddie offer mortgage backed securities (MBS) to investors. MBSs are basically bonds that are backed by multiple mortgages. The exchange of these bonds—along with other factors and influences—impacts mortgage rates.
The Bottom Line
If you’re clear about where to send the mortgage payment, your rate and terms are the same, and you’re receiving good customer service, there is no need to worry about your loan being sold. It happens all the time!
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