Why Do Mortgage Companies Sell Your Loans

What Are Your Rights

Both the buyer and seller of the mortgage must provide you with written notice at least 15 days before the mortgage transfer takes place, according to federal regulations.

In addition, the new mortgage owner is required to provide you with its contact information within 30 days after the transfer. Youâre also entitled to a 60-day grace period in case you send a payment to the old lender.

Beyond that, the lender has every right to sell your loan and you canât do anything stop it, said Tammi Lindley, senior loan officer for the Tammi Lindley Team, a mortgage lender.

âIf as a result of the sale you find yourself with a lender you donât like, your only recourse is to pay the loan off, most likely with a refinance,â said Lindley.

What If You Experience A Legal Issue

A mortgage company should protect its consumers during loan transfers if you run into a legal issue. Mortgage companies are required by law to notify you of this right when you agree with them. In addition, they must also give you information about your rights and responsibilities under the law in your state.

You Can Still Make Payments To The Old Servicer For 60 Days After The Transfer Though You Probably Shouldn’t

Under federal law, you’re allotted a 60-day period starting on the servicing transfer date, during which you can still send your mortgage payments to the old servicer rather than the new servicereven though the new servicer is the proper recipient. During this time, you won’t be assessed a late fee, and your payment won’t be reported late to the if the old servicer receives your payment on or before the payment due date, including any grace period you get under the mortgage loan documents. .

The old servicer is then supposed to forward the payment to the new servicer or return it to you. In rare cases, though, the old servicer might lose track of the money or deposit the payment in its account but neglect to send the funds on to the new servicer. For this reason, it’s best to take careful note of any changes in your loan servicer and start sending your payments directly to the new servicer once the transfer date occurs.

After you start sending your mortgage payments to the new servicer, you should monitor at least two payments to make sure the new servicer is correctly applying them to your account.

You May Like: How Much Mortgage Can I Get On 30 000 Salary

Wait Seriously My Mortgage Was Sold What Are My Rights

There are two components of your loan that may be owned:

The owners of the note and servicing rights do not have to be the same company. Thats right, the holder of your note may not be the person that you are paying monthly for your mortgage. Oy Vey!

Do not fret government regulations require that you as the borrower receive notice whenever there is a transfer of either component.

The Truth in Lending Act was amended in 2009 to require that borrowers be notified when their mortgage was sold, transferred, or assigned to a new creditor.

The notice must be provided within 30 days of the sale, transfer, or assignment, and must include information about the new creditor, the date of transfer, how to reach a party having authority to act on behalf of the new creditor, and recordation of the debt.

Furthermore, the Real Estate Settlement Procedures Act provides protection for you if your mortgage was sold.

Under RESPA, your present loan servicer is required to notify you in writing of the assignment, sale, or transfer of servicing rights at least 15 days before the effective date of the transfer. The new servicer or holder of your mortgage must also send you this notice no later than 15 days after the effective date. The note of transfer must include the following information:

Other items to keep in mind:

Mortgage Sale Consequences For Borrowers

If you donât know who is servicing your mortgage loan, you could end up sending your monthly mortgage payment or past-due amounts to the wrong company and the payment could show up late. Making a late payment could result in late fees, and it might even hurt your credit report, depending on how late it is and the terms of your contract.

If your mortgage has a fixed interest rate, you donât have to worry about your interest changing with a mortgage sale. If you have an adjustable-rate mortgage , your interest rate could change whether your mortgage stays with the current owner or is sold to a new owner. Generally speaking, your loan terms donât change when your mortgage is sold.

Read Also: What Type Of Credit Is A Mortgage

What Do I Do If I Dont Like My New Loan Servicer

You dont have any control over who your loan is sold to, which can be problematic if your loan is sold to a servicer that you dont like or trust for any reason.

If you dont like your new servicer, there is the option to refinance with a different lender, which will change the rate and term of your original loan. Refinancing is a good idea if you can secure a lower interest rate and/or more favorable loan term, helping you save money on your mortgage overall. If you wont be able to secure more favorable loan terms, it might not be worth refinancing just to get out from under your loan servicer.

Your Loan Payments Are Unchanged

Even though your mortgage was sold to Freddie Mac, there is no change to the way you make your mortgage payment.

You must continue to send your payments to the company listed on your mortgage statement.

The selling of your mortgage to Freddie Mac does not change the terms or conditions of your mortgage, and your payment obligations remain the same.

If you have questions about your mortgage or mortgage payment, contact your servicer, which is the company you make your mortgage payments to, using the contact information on your mortgage statement. Do not contact Freddie Mac.

Read Also: How Much Does It Cost To Get A Mortgage

What To Do If You Have A New Servicer

Say your loan is sold but the servicer stays the same. If so, you typically wont be notified. You will continue to make the same payments to the same source.

Sometimes, a mortgage loan can be sold multiple times without the borrowers knowledge if the servicer doesnt change with the sale, says Whitman.

If your loan is sold or transferred and the servicer changes, heres what to expect and do:

Prepare to send your payment to the new servicers address. Thankfully, theres a 60-day grace period after the transfer, Baker adds. During this time, you cant be charged a late fee if you mistakenly send your payment to the old servicer.

How Fannie Mae Impacts Your Mortgage

Fannie Mae is happy to buy mortgages from lenders but not every mortgage.

For Fannie Mae and Freddie Mac to be able to re-sell loans, they need to be considered safe investments. That means each mortgage must meet certain requirements or guidelines.

Fannie Mae guidelines run more than 1,200 pages. For instance, for 2021 the maximum loan limit Fannie Mae will purchase is $548,250. The company will not purchase bigger loans, so-called jumbo financing.

Thanks to these types of guidelines, Fannie Mae has a large role in deciding which mortgage applicants are considered eligible, and which arent.

Also Check: Can I Get A Mortgage Loan After Chapter 7

Why You Can Trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.

What The Loan Sale Means For You

As a homeowner, it can be frustrating to find out that your mortgage has been sold. After all, you likely put lots of time and effort into finding the right lender, and discovering youve been passed off with little notice can be quite disappointing.

Fortunately, the loan transfer shouldnt impact your rates or terms included in the original agreement. The servicer may only change servicing-related details, such as where you send your payments, your payment date, and in certain situations, the way that escrow is calculated.

The new servicer may conduct an escrow account analysis to understand the balance within the account and determine a surplus, shortage, or deficiency. If the servicer determines any such balance, or if escrow terms or accounting formulas change, the servicer must provide you with your first escrow document within 60 days of the transfer. All other loan terms will remain the same.

You May Like: What Is The Average Mortgage Payment In Michigan

What’s The Difference Between A Lender Servicer And Investor

First, let’s define the terms “lender,” “servicer,” and “investor” when it comes to the mortgage business.

• Lender. The “lender” is the financial institution that loaned you the money. The lender owns the loan at that point. Later on, the lender might sell the mortgage debt to another entity, which then becomes the new owner of the loan. Mortgages are frequently bought and sold in the mortgage industry. The sale of your mortgage loan to a new owner doesn’t affect the terms or conditions of the loan contract.
• Servicer. A “servicer” handles the day-to-day tasks associated with mortgage loans, like collecting and processing payments, responding to borrower inquiries, and managing escrow accounts. The servicer might be the lender that gave you the loan . Or, it might be a separate company that acts on behalf of the loan owner. That servicer might then hire a vendor, called a “subservicer,” to take on the servicing duties rather than servicing the loan itself.
• Investor. A mortgage “investor” is the party that purchases home loans that lenders originate. Fannie Mae and Freddie Mac, for example, are investors that buy loans from lenders on the secondary market.

Fannie Mae Guidelines: Conforming And Conventional Mortgages

Loans that conform to Fannie Mae and Freddie Macs guidelines are called conforming mortgages.

Another term you might have heard is conventional financing. A conventional mortgage is simply a non-government mortgage. These loans are not backed by the FHA, VA or USDA.

In effect, its possible for a mortgage to both conforming, meaning it meets Freddie/Fannie guidelines, and conventional, meaning its not insured or guaranteed by a government program.

Fannie Mae and Freddie Macs guidelines are important in the mortgage world.

These requirements can include things like:

• The size of the home loan
• Minimum credit score requirement
• Debt-to-income ratios

However, as a borrower, you also need to know that guidelines are often not absolute.

If you have a lot of monthly bills, for example, your debt-to-income ratio could be high. In theory, this would make it hard to qualify for a conforming loan. However, compensating factors like a large down payment or beefy savings account could help offset that DTI and let you qualify.

In short, Fannie Mae and Freddie Macs loan guidelines are often less strict than borrowers might believe.

Also Check: How Do Mortgage Brokers Make Money

What To Expect As A Borrower

The good news? A transfer or sale of your mortgage loan should not affect you.

A lender cannot change the terms, balance or interest rate of the loan from those set forth in the documents you originally signed. The payment amount should not just change, either. And it should have no impact on your credit score, says Whitman.

If your loan gets a new servicer, You may experience a different approach to loan servicing. But it should not increase your obligations, she adds.

Who Sells Mortgage Loans

After buying a home, you might receive a letter stating that your mortgage loan has been purchased by an investor. But who sold it? The short answer is banks and lenders.

Why are banks selling mortgages? Well, its all about liquidity. Banks and lenders need to have enough money to continue to offer mortgages to homeowners. Usually, the purchasing investor will be one of the three government-owned or government-sponsored corporations that deal in mortgages: Fannie Mae, Freddie Mac and Ginnie Mae. Occasionally, a smaller, nongovernmental investor will be the one to purchase your mortgage.

Before we get into the why of mortgage investors, it may be helpful to first go over a few different terms.

Don’t Miss: Will Mortgage Rates Stay Low

How Homeowners Are Affected By A Mortgage Sale

As a mortgage holder, you are not greatly affected when a lender sells your loan. You will owe the same amount each month, and you will have the loan for the same length of time. Of course, if you have an adjustable rate mortgage, the interest rate could go up or down, changing your payment amount but that could happen with your original lender as well.

However, when your loan is sold, you will send your monthly payment to a different servicer, and if you have questions, you will contact a different company. Unless you’re writing a check every month, you’ll want to update your online payment with the new address or sign up for auto pay with the new servicer’s website.

Why Was My Home Mortgage Sold

Banks, credit unions, and other lenders lend money for houses on whats called the primary market. They are known as mortgage originators or lenders. On the other hand, mortgage servicers are the ones who handle your mortgage payments and escrow accounts. Some originators are also servicers, while others are not.

After the original loan is established, the lender can either keep the loan in their own portfolio, or sell it on the secondary mortgage market, either individually or grouped with other mortgages. Outside investors, either based in the U.S. or abroad, often buy these loans.

Below is an example breakdown of the process.

The secondary market also helps support a stronger, more resilient primary housing market on the whole. Reselling mortgages frees up money for new mortgage originations and lowers interest rates.

You May Like: Are There Any Mortgage Lenders For Bad Credit

How Will I Find Out If My Mortgage Is Sold

Lenders are legally required to notify you of your loan sale before it happens. You should get a notice in the mail at least 15 days prior to the official transfer.

Your loan may be owned and serviced by the same company, or two different companies. The new servicer of your loan must also send notification within 15 days of the sale.

If theres a new owner of your loan, they must send notification within 30 days of taking over your loan, which will include:

• The new owners name, address, and phone number, and the person authorized to fix loan payment issues and receive legal notices
• The date the owner takes possession and where the transfer is recorded

What Happens When Your Mortgage Is Sold

If your mortgage loan has been sold you will receive proof from both your old and new lender. Your new lender will send you a loan ownership transfer notice within 15 days of the effective date of transfer. This notice will include personal information such as your name, address and contact information. It should also include the date of transfer, as well as whether the transfer of ownership is recorded properly in public records. Make sure to fact check all of the documents you receive.

Next, youll likely receive a mortgage statement from the lender who purchased your loan. Make sure you read it carefully to ensure all the information included is accurate.

Thats pretty much it.

Read Also: How Much Does Paying Mortgage Bi Weekly Save

Why Do Mortgage Companies Want You To Refinance So Badly

If you already have a mortgage, theres a good chance you receive junk mail on a regular basis urging you to refinance.

You may receive solicitations from both your current bank/loan servicer and from a competing lender or mortgage broker looking to acquire your business.

But why do they want you to refinance your mortgage so badly? Whats in it for them, especially if they already originated your mortgage and get paid interest each month?

Wouldnt it be in their best interest to hold onto your mortgage and continue to earn a decent rate of return, rather than give you a new low rate.

Recommended Reading: Does Va Loan Work For Manufactured Homes

Your Mortgage Is A Financial Product

When you apply for a mortgage, you will no doubt research different lenders. Then you will evaluate a wide range of loans and their terms and conditions before choosing the best mortgage for you. Along the way, you probably asked potential lenders a bunch of mortgage questions to determine who will be best for your financial circumstances.

Without a doubt, youve probably learned quite a bit along the way. The process of choosing a lender and your mortgage has concluded. The lender has accepted your application. It feels like a relationship between the two of you.

Wrong. To lenders, mortgages are just another product. Products which make a stable profit, make them valuable items to buy and sell.

Also Check: How To Get Loan Originator License

Also Check: When To Refinance Your Mortgage Rule Of Thumb