Although you may have signed on with a certain lender when you bought your house, you may find that after a while, your mortgage statements start coming from a new company. While it can be unnerving to see this new name asking for payment, fear not! The practice of selling mortgages in the secondary mortgage market is very common.
In fact, the majority of mortgages are sold in the secondary market after they’re originated. Regardless of which company owns your loan, a loan is a loan — and what’s on your mortgage note hasn’t changed.
But just so you can rest easy, here are answers to common questions you may have about your mortgage changing hands.
Why would a lender sell my mortgage?
The adage that “it takes money to make money” holds true, especially for lenders. Lenders need capital to originate new mortgages, and most mortgages have 30-year terms. If a company were to wait for borrowers to pay off their loans, it would need an exorbitant amount of capital to fund new mortgages. So instead of waiting 20 to 30 years for a borrower to pay down a mortgage, most lenders sell the loans they originate to an investor, such as a government-sponsored enterprise (for example, Fannie Mae or Freddie Mac).
Home mortgages aside, banks and finance companies sell just about every loan they originate so they can raise money to make more loans. Auto loans, credit card loans, and student loans are all fair game to package into bonds that can be sold to both domestic and international investors. Without investors willing to buy these loans, banks and finance companies wouldn’t be able to lend you money from the get-go.
Is it legal for a lender to sell my loan?
Yes, it’s perfectly legal for a lender to perform a mortgage transfer, but not every lender sells every loan. Some lenders hold higher-balance nonconforming loans on their balance sheets; sometimes these same loans are sold to investors so that the lender can free up cash and originate more loans. It really depends, and borrowers cannot stipulate that their mortgage won’t be sold to another lender or that the servicer won’t ever change.
The Real Estate Settlement Procedures Act requires that a lender disclose plans to transfer servicing for your loan to another lender in the Mortgage Servicing Disclosure Statement. If you didn’t receive this document when you applied for your loan, your lender should have mailed it to you within three business days of your application.
How do I find out if my loan has been sold?
Lenders are required to notify borrowers within 30 days of the sale. This notice will include the name and contact information for the new owner of your loan, when your loan will be sold, and whether the sale will be included in public records.
Is the servicing sold too? Are the servicer and lender the same company?
Your lender and the servicer aren’t always the same company. A lender originates the loan and provides the capital for you to buy your new home or refinance your existing home, while the servicer handles the day-to-day maintenance of your loan — things such as processing and recalculating payments, managing escrow accounts, and beginning foreclosure proceedings.
Sometimes the servicer will remain the same after a loan is sold. If the servicer changes, you’ll receive notice of the new servicer that includes details on where to send payments and contact information for questions.
Will my payment change if my loan is sold?
Unless you have an adjustable-rate mortgage, no. Whether your loan rate is fixed or adjustable, your payment may also change if you pay your taxes and insurance through an escrow account and what’s due changes. All other loan terms will remain the same.
What if I send my payment to the wrong lender?
If your payment is already in the mail, you won’t be charged a late fee for mailing your check to your old lender. There’s a 60-day grace period after your mortgage is transferred.
What if I don’t receive any notices, and my servicer has changed?
For borrowers, the transition between lenders and servicers is usually pretty seamless, but that’s not to say mistakes don’t happen. When thousands of loans are transferred from one company to another, issues can arise. If your lender or servicer changed and you weren’t notified, then you can file a complaint online with the Consumer Financial Protection Bureau.
Borrowers should feel confident that they are protected if their loan is sold in the secondary mortgage market. The handoff to a new lender or servicer should be as painless as receiving a few letters in the mail, and being cognizant of where and when to send your payment each month.