Imagine opening your mailbox or inbox and getting a letter from your mortgage lender telling you that your mortgage loan is being sold. If you didn’t know that selling mortgages was a thing, the letter might leave you confused or even frustrated.
Take a deep breath because it’s nothing to stress over. Mortgages get sold all the time – and there’s a good reason for it.
But, to answer the question you probably want answered ASAP, selling a mortgage won’t affect the original terms of your mortgage loan.
It’s like a TV network selling the rights to a TV show to another network. Maybe the network didn’t want to produce another season, but the show must go on – literally.
Often, when a show is sold to another network (we’re looking at you, “Designated Survivor”), the original cast, writers and producers stay with the project. In fact, the only major difference for fans is where they watch.
While you may have to switch the channel or watch on a streaming service, all that matters is that the show is still there for your viewing pleasure.
It’s the same with your mortgage. It can change hands, but your loan will keep its original terms and conditions. But, because it changed hands, you may need to create an account with the new servicer so you can continue making your monthly payments.
Major Players in the Mortgage Industry
There are different types of companies in the mortgage space. You’ll interact with some more than others, but it doesn’t hurt to understand each one’s role before we dig into why mortgage loans get sold.
You’re probably most familiar with lenders (aka mortgage originators). They are the frontline of the mortgage industry, offering and originating mortgages for home buyers. Lenders can be banks, credit unions or other primary mortgage lenders.
Next up are aggregators like Fannie Mae and Freddie Mac. These companies help keep the market liquid by buying mortgages from lenders. They either keep them in their investment portfolios or package them into mortgage-backed securities (MBS) that are sold to investors.
Now we get to the mortgage investors; the parties that buy the MBS packages. Investors can be investment banks, individuals who buy MBS packages as bonds, institutions or the federal government.
Finally, you have the loan servicers. You send your monthly mortgage payments to loan servicers. They handle the payments and the escrow account where property taxes and insurance payments are kept until they’re due. Some companies that own their loans will do internal servicing. Others will outsource it.
Sometimes, when loans are sold, the originator (aka the first servicer) maintains the servicing rights. There are other scenarios where servicing travels with the loan. Either way, a lender will let you know who your servicer is when your mortgage changes hands.
Why Lenders Sell Mortgages
Mortgages get sold because lenders have limited funds and can’t take on unlimited debt. While mortgages can be lucrative for lenders, eventually, loans get paid off. Sometimes over a long period of time, usually 15 – 30 years.
Mortgage originators often can’t afford to wait 15 – 30 years for the loans to be fully repaid, so they’ll bundle mortgages and sell them to aggregators on the secondary mortgage market. Selling the mortgages frees up money, allowing lenders to continue offering mortgages to other borrowers.
Selling mortgages is crucial to keeping the mortgage industry flowing smoothly. It ensures that lenders have the capital they need to offer mortgages to new home buyers.
When you’ve been notified that your mortgage has been sold, it’s referring to servicing rights. You won’t necessarily be in contact with the investors, just the servicers who manage the MBS.
What To Expect From Your New Loan Servicer
If you’ve got student loan debt, you may already know the drill when it comes to loans changing hands.
Whether you’re familiar with the process or not, your mortgage lender is legally obligated to notify you of the sale 15 days before it happens. The new servicer must contact you with any updated information within 30 days of the sale.
When the new servicer reaches out, they’ll provide their name, address and phone number, as well as any additional information you’ll need as the borrower.
You’ll probably have to create a new account, but the change in ownership won’t affect your payment amount. When loans are sold, they retain the mortgage balance, the interest rate, the payment plan and any other agreed terms.
Your Next Steps
You’ve been notified that your mortgage was sold. Now what?
There are a few things you can do to ensure a seamless transition and keep track of your debt.
- Follow instructions: Review the expectations in the notice of sale and do whatever it says. This could be anything from setting up a new account to changing the payment address. If the servicer remains the same, you may not have to do anything at all.
- Confirm the first monthly payment: Log into your account and double-check that your first payment under the new ownership was received.
- Keep records: Save statements from a month or so before and after the transfer as proof of payments made. You’ll need that paperwork in case there’s a miscommunication or you or your servicer misses something.
- Don’t stress: If you accidentally send a mortgage payment to the original servicer, it’s okay. Mortgages have a 60-day grace period to protect homeowners from any complications or mistakes during mortgage sales.
Bottom Line: Know Your Servicer
There’s so much going on behind the scenes of the mortgage industry. Your mortgage could change hands (but not terms) many times throughout its life.
What matters is that you know who your service provider is. They are your point of contact, and most importantly, where you send your payments.