Have you received a letter notifying you that your mortgage loan has been sold? If so, don’t be alarmed! This is common practice among most mortgage companies. Having a sold loan means that the lender has sold the rights to service the loan (i.e. collect the monthly principal and interest payments.) Everything about the loan remains the same except for the address the mortgage payments will be sent to. There are multiple reasons why mortgage lenders sell loans. But first, you must understand how the mortgage world works.
The Mortgage Process
When you are interested in purchasing a new home, you first reach out to a mortgage lender to see whether you can qualify for a loan. At this stage, you and the lender are working in the primary market as borrower and retailer. Once you are approved, your lender is then able to lend you X number of dollars towards the purchase of your new home. As soon as your loan closes, you begin to make monthly payments to your lender. At the same time, your lender will either keep the loan and collect payments from you for the life of the loan, or sell your loan for a servicing release fee. Your loan can be sold whole, or it can be “pooled” along with other similar mortgage loans, and sold to investors, such as pension funds, mutual funds, insurance companies, and international banks. At this point, a servicer then assumes the responsibility of collecting your payments and distributing them to the investor who now holds your loan.
Why is the lender selling your loan?
Now you may ask, “why is my lender selling off my loan?” There are two explanations to this question:
- Your mortgage lender simply does not have enough cash to provide everyone with a loan at the same time. A mortgage is a loan with a term of 15-30 years, so lenders make back their money slowly. So, most lenders are not able to accumulate cash fast enough via servicing to make new loans. Banks, on the other hand, have a higher amount of capital on hand and can make new loans while collecting servicing on their existing loans.
- Loans = profit. Lenders and banks generate profit when selling a loan. Investors who purchase these approved loans from banks are willing to buy due to the steady amount and interest accumulated on the loan.
Transferring ownership of your loan is common and does not affect the terms of your loan. Mortgage companies are legally required to inform you of any transfers of your loan between mortgage servicers. Your mortgage loan agreement remains the same as when you signed it and you do not need to take any action besides sending your payments to a new location. Take note that you might have to redo some paperwork with the new company, but your new servicer should be readily available for any questions and concerns. By Hannah Nguyen
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