Why did your mortgage lender sell your loan? (2024)
If you’ve ever taken out a mortgage, there’s a good chance the lender who made the loan to you sold it to another bank or investor before you made your first payment. There’s also a good chance that if you’ve had your mortgage for a few years, it may have been sold at least one or two more times. Why all the paper shuffling? The answer is fairly straightforward.
Lenders typically sell loans for two reasons. The first is to free up capital that can be used to make loans to other borrowers. The other is to generate cash by selling the loan to another bank while retaining the right to service the loan. Cash is generated when the old lender charges the new lender a fee for collecting and disbursing the monthly payments. In the end, your loan could be owned by lender “A” while you make payments to lender “B.”
On a personal note, I once obtained a mortgage loan from one of the local community banks here in Las Cruces. I was informed at the closing that my loan had already been sold to what financial guru Clark Howard calls a multi mega-bank (MMB). In turn, the MMB sold the loan to the General National Mortgage Association (Ginnie Mae). Until the mortgage was paid off, I continued to make my monthly payments to the MMB, who retained the servicing rights, even though Ginnie Mae is the owner of my loan.
Federal law protects borrowers when loans are bought and sold by requiring that both the old and new lenders notify you in writing within 15 days of a sale that a transfer has taken place. The letters should provide the name of the new lender, how and where payments can be made, and when your next payment is due. You should continue making payments to your old lender until you receive the letter from the new lender. While the loan is being transferred, borrowers are afforded a 60-day grace period that prohibits the new lender from collecting late fees or declaring a loan delinquent. In addition, the terms of your original mortgage are set in stone and cannot be modified by the new lender or servicer.
If payments are not credited properly or some other issue arises during or after the transfer, it’s up to you to pursue a remedy in a timely manner. Step one is to notify the new lender in writing. The letter should be addressed to the customer service or other department designated by the lender to receive correspondence, and should not be included with your regular monthly payment. The lender is required to respond within 20 days of receiving your letter. Lenders also have 60 days to resolve the problem if the issue requires extraordinary efforts to investigate.
Not satisfied with your lender’s response? Step two is to file a complaint with the Consumer Financial Protection Bureau, or CFPB (www.consumerfinance.gov). The CFPB requires that your lender address the complaint within 15 days of when they receive notification from CFPB. Complaints having to do with fraud, unfair business practices or identity theft can be filed with Federal Trade Commission (www.ftc.gov/complaints) or the New Mexico Attorney General’s office (www.nmag.gov/file-a-complaint.aspx).
So, who owns your mortgage? There are three ways to find out. First, call or write to your servicer. Most have a secure email option on their website through which you can ask. I did just that while doing research for this column and received a response within 30 minutes. You can also ask Freddie Mac (www.freddiemac.com/mymortgage or 1-800-FREDDIE) and Fannie Mae (www.knowyouroptions.com/loanlookup or 1-800-2FANNIE) if they own your loan.
If all else fails, contact the folks at Mortgage Electronic Registration Systems, Inc. (www.mersinc.org or 1-800-679-6377). MERS Servicer ID is a free service that provides information on the current servicer and investor (owner of the note) for loans registered on the MERSSystem.
See you at closing.
Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at (575) 642-2292 or Gary@GarySandler.com.
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Why Do Banks Sell Mortgages? Again, it's all about liquidity. Banks and lenders need to have enough money to extend mortgages to homeowners. With the real estate market constantly changing, financial security is important for all parties involved in the mortgage process.
Why do mortgages get sold? Many lenders specialize in originating a mortgage, but often, this initial lender can't afford to wait for 15 or 30 years for you to pay it all back. By selling it, they no longer have to keep your debt on their books, and they can offer loans to other prospective homeowners.
By selling off the loans they provide, lenders can obtain the cash they need to make additional loans. Investors also benefit from the secondary mortgage market by gaining access to a relatively safe investment that produces interest income.
Collateral guarantees a loan, so it needs to be an item of value. For example, it can be a piece of property, such as a car or a home, or even cash that the lender can seize if the borrower does not pay.
Homeowners are often transferred to SPS once they become delinquent on their mortgage payments. Many lenders try to protect their brand when it comes to foreclosing on homeowners.
Yes. Federal banking laws and regulations permit banks to sell mortgages or transfer the servicing rights to other institutions. Consumer consent is not required. However, the bank or new servicer generally must comply with certain procedures notifying you of the transfer.
Owner financing can be a good option for buyers who don't qualify for a traditional mortgage. For sellers, owner financing provides a faster way to close because buyers can skip the lengthy mortgage process.
loans originated in the primary Market Market can be bought, sold or traded in the secondary mortgage Market. Primary lender sell their notes to generate more money to make more loans.
When a loan is sold in its whole, the lender receives a one-time payment but no longer receives interest or principal payments from the loan. But, if only a piece of the loan is sold, the lender will still get some payment right away while still collecting interest on the remaining balance.
If your personal loan is unsecured, which is often the case, the lender doesn't have any collateral to seize if you fail to repay. As mentioned previously, however, a collection agency may try to sue you for the unpaid amounts you owe, attempt to garnish your wages, or place a lien on your home through a court order.
Both recourse and non-recourse loans allow lenders to seize collateralized assets after a borrower fails to repay a loan. After collateral is collected, lenders of recourse loans may go after a borrower's other assets if they have not recouped all of their money.
The main reason is to allow lenders to afford to lend money to new home buyers. It's common practice to sell mortgages so that lenders can get more money to help finance additional mortgages. The process is cyclical and continues from there.
If you already have a mortgage loan, the loan contract most likely has a clause permitting the current owner to sell it to a new owner. So, you can't prevent transfers. However, you could consider refinancing through a portfolio lender.
In California, most major lenders will transfer servicing to a company like Shellpoint once you fall 60 days behind on your mortgage. This allows them to protect their brand thru the foreclosure process.
When the bank or lender that originated your mortgage sells it, they get back all the money they lent you right away, plus a chunk of the interest you're expected to pay over the life of your mortgage. They also get some of your closing costs.
Sometimes called 'mortgagee in possession' sales, or 'mortgagee auction' sales, even 'foreclosures', the result is the same: a property owner defaults under the mortgage, and the bank sells the property up.
You'll Get Notice If Your Loan Servicer or Holder Changes
Don't be surprised if you find out that your mortgage loan has been sold or the servicer changed. A mortgage debt often changes hands over the life of the loan. If your mortgage is sold or the serving rights change, you'll get a notice about the transfer.
Mortgage lenders can make money in a variety of ways, including origination fees, yield spread premiums, discount points, closing costs, mortgage-backed securities (MBS), and loan servicing. Closing costs fees that lenders may make money from include application, processing, underwriting, loan lock, and other fees.
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