Key Points About Mortgage Lenders
Many mortgage lenders charge a fee for their services.
Retail lenders provide mortgages directly to consumers.
Direct lenders originate their own loans, either with their own funds or borrowing them elsewhere.
Portfolio lenders fund borrowers loans with their own money.
Wholesale lenders dont work directly with consumers, but originate, fund, and sometimes service loans.
Correspondent lenders are the initial lender making the loan and might even service the loan.
Warehouse lenders help other mortgage lenders fund their own loans by offering short-term funding.
Hard money lenders, usually private companies or individuals with significant cash reserves, are often the choice for those who want to flip a home after a quick renovation.
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
Why Was My Mortgage Sold To Another Company
Having your mortgage sold to another bank or company is not the end of the world. In fact, it is a very common thing. Say you just survived the mortgage jungle and are celebrating in your new home. It took you five minutes and ten exclamation points to send out your new home address to all of your friends and family.
Now you are sitting on your brand new couch, waiting for all of your housewarming presents, but the first delivery in the mail isnt a blender or a photo of your weird aunt and her cats. Nope, its a letter regarding your mortgage.
The letter is from someone named Fannie Mae, and reads Notification of Assignment, Sale, or Transfer of Your Mortgage Loan.
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Why Do Mortgages Get Sold
Its all about liquidity. Banks and lenders need to have enough money to continue to offer mortgages to home buyers.
Think about the typical 30-year loan term. If a mortgage lender has its money tied up in that transaction for the full 30 years, it will have less money to offer future mortgages. By allowing the mortgage to be purchased by an investor, the lender now has the capital and money flow to continue to lend to other borrowers.
On a larger scale, this process is a part of how the mortgage market works. Investors keep the market liquid so lenders can continue to help borrowers purchase homes.
Why Did My Mortgage Company Sell My Loan To Another
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You just purchased your new home and a few months in, you receive a letter from your mortgage company or bank stating that your loan has been sold. What does this mean and how will it affect you?
There are several reasons why your mortgage company would sell your loan to another. Other than who you send your monthly payments to, nothing should change.
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The Department Of Education Would Have To Sign Off On Any Deal
The company is currently negotiating its exit with the Department of Education and said it plans to turn over its student loan servicing business to Maximus, another government contractor.
Navient said it is consulting with the Department of Educations Office of Federal Student Aid , and both companies have signed off on a preliminary request for review. The contract transfer will be subject to the consent of FSA.
Navient is pleased to work with the Department of Education and Maximus to provide a smooth transition to borrowers and Navient employees as we continue our focus on areas outside of government student loan servicing, said Navient CEO Jack Remondi. Maximus will be a terrific partner to ensure that borrowers and the government are well served, and we look forward to receiving FSA approval.
What You Should Worry About If Your Lender Sold Your Mortgage To Another Bank
Have you ever taken out a loan from a mortgage company or bank only to find out a few months down the road that it’s been sold? Don’t be surprised if this happens to you — multiple times — because it’s common that lenders sell mortgages.
Federal banking laws allow financial institutions to sell mortgages or transfer the servicing rights to other institutions. Consumer consent is not required when lenders sell mortgages. It might seem alarming because a mortgage is something very personal to a consumer, a symbol of your home ownership. But banks and other financial institutions view your mortgage differently. To them, your mortgage is just another financial asset. And that means lenders handle your home loan much more differently than you might.
Questions might be swirling around in your head. Why is your servicer allowed to do this? What does it mean for you? Are the terms of your mortgage going to change? Don’t panic if you discover that your mortgage now belongs to another institution. Remember: a loan is a loan no matter who owns it. Your interest rate, payment amount, type of loan , etc. cannot change just because your loan has been sold. The only thing that’s changing is the address you’re sending your payments to.
To help put your mind at ease, here are answers to all of the questions you might have about your lender selling your mortgage:
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Has There Always Been A Secondary Mortgage Loan Market
The government founded Fannie Mae and Freddie Mac in 1970. Before this, only the larger banks had enough money to extend thousands of mortgages and hold them for the length of the loan. As a result, mortgages were difficult to obtain, and there was little competition in the mortgage market. This lack of competition led to higher interest rates and fees.
Not only that but a thriving housing market boosts the entire economy. Depending on where you source your information, Real Estate contributes between 13% and 18% of the US Gross Domestic Product.
What Does It Mean For You When Your Loan Is Sold To Another Mortgage Loan Servicing Company
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Many first-time homebuyers dont realize their loans will likely be sold to another mortgage loan servicing company after closing. In fact, a loan can be sold again and again . Luckily, breaking up doesnt have to be hard to do: Heres a quick rundown of what you need to know in the event your mortgage loan is sold.
The company that collects your monthly mortgage payment is known as the servicing company. Sometimes lenders who fund mortgages will keep the loans on their books and function as the mortgage loan servicing company, too. But in many cases, lenders sell off their loans to other companies for servicing.
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Why Was My Loan Sold
Most people dont realize that the secondary home loan market plays a huge role in keeping the mortgage industry thriving. This secondary market purchases mortgages and makes money as you pay off your home.
Home loans are sold regularly for two reasons. The main reason is to allow lenders to afford to lend money to new home buyers. Its 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.
When lenders sell loans, theyre able to take this debt from their balance sheet and free up their credit for new customers.
The second reason your home might be sold is to provide the lender with instant funds. Your lender might earn tens of thousands to hundreds of thousands of dollars off of your home loan in interest, but theyll need to wait 15 or 30 years or the length of your mortgage to receive their funds. Sometimes lenders prefer to make a faster profit by selling off your mortgage to an investor.
You can find out if your mortgage can be sold by consulting your loan paperwork. Your lending agreement or mortgage contract will detail in fine print whether your home loan has the option of being sold to another investor.
What To Do After Your Mortgage Is Sold
The first thing to do upon learning that your mortgage has been sold is to touch base with your mortgage broker company. They will be a good guide in explaining the process. Then you should get to know your new servicer. You can check out their website and can call the customer service number to ensure everything is in good working order. Be sure to inspect all of the documents that are sent to you, and store them in a safe place.
Its also a good idea to set up automatic payments with your lender, that way when the loan is sold again its faster to reset automatic payments with your new lender.
At Blue Water Mortgage, our trusted team of mortgage experts are master communicatorsensuring all customers are aware of changes in their mortgage terms at all times. Contact us today if you have questions about your mortgage that was recently sold to a new lender.
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So Why Does My Mortgage Get Sold
Loan servicers are businesses in search of a profit. Andrews says the value of the servicing depends on two main factors:
- Whether a borrower pays on time or not
- How long the borrower will be paying
If a servicer receives a quarter percent for servicing a 30-year mortgage, a consumer who pays steadily for the life of the loan is more valuable than a borrower who opts for a refinance within a few years.
Keep in mind: During a refinance, the new loan pays off the old loan, and new terms are set. So if a servicer was expecting to earn a quarter of a percent over 30 years and the borrower refinances after only five years, the servicer gets the share for five years as opposed to 30.
For example, if you have a $100,000 loan at 4% for 30 years, youd pay about $70,000 in interest over the life of the loan. However, the lender would need to wait a full 30 years to make that full $70,000. In hopes of a quicker profit, lenders will often sell the loan.
If servicing a loan costs more than the money it brings in, lenders may attempt to sell the servicing of it to lower their costs. The lender may also sell the loan itself to free up money in order to make more loans.
Loan servicers have another consideration in play. They need to pay investors who buy mortgage-backed securitieseven if a consumer with a mortgage cant make payments or is in forbearance.
With millions of homeowners asking for forbearance, Andrews predicts more mortgages will be sold.
Your Mortgage Broker Is Still Your Mortgage Broker
Remember, your broker doesnt own your loan, the lender does. Your broker is simply your guide through the mortgage application and approval process, the person or persons who help you lock in the best interest rate for your loan.
So even despite your mortgage being sold to a new lender, your mortgage broker is still able to assist you with refinancing efforts, any new mortgage needs, as well as answer any questions about the loan in question.
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Who Is Buying And Selling These Mortgages
These mortgage loans are sold on the secondary market, which mainly consists of two organizations, Fannie Mae and Freddie Mac. The secondary market is the place where mortgages are bought and sold by various investors. Secondary market investors include Fannie Mae, Freddie, various pension funds, insurance companies, securities dealers, and other financial institutions. All of the loans sold to Fannie Mae and Freddie Mac must meet certain guidelines for credit worthiness and repayment likelihoods.
The secondary mortgage market exists as a source of money for banks to lend out to home buyers in every state. This is done in two ways:
- Pay cash for mortgages that purchased from lenders and hold those mortgages in Fannie Mae’s investment portfolio. The lenders, in turn can use that money to make more mortgages for more home buyers.
- Second the secondary market issues what are known as Mortgage-Backed Securities in exchange for pools of mortgages from lenders. These MBS provide the lenders with a more liquid asset to hold or sell. MBS are highly liquid investments and are traded on Wall Street through securities dealers.
Can I State That I Dont Want My Mortgage Sold
Somewhere in the terms and conditions of your mortgage paperwork, it likely says your mortgage can be sold. Andrews says there is really no way to keep it from happening.
The trade-off for the odd behind-the-scenes shuffling of your mortgage is a lower interest rate for youthe all-important borrower.
Its just part of making the entire mortgage industry safer, more liquid, Andrews says. Back in the old days you would go to the bank and make your payment at the bank. The rates depended on how much money the bank had and the area economy.
But instead of the bygone days of interacting with the local banker, nationwide competition for your borrowing needs has been unlocked.
By nationalizing the mortgage market, you provide lower rates and better options to the consumer, says Andrews.
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Will My Loan Change
The details of your loan your mortgage rate, terms and other agreements will not change if your home loan is sold by your current lender. Those details are locked into your contract and will remain the same as they did on the day you closed on your home.
What you need to look out for are potential changes in your loan servicer.
When lenders sell your home loan to institutions like Fannie Mae, Freddie Mac or the three main government agencies, they sometimes retain servicing rights. This means theyll still handle all the home loan servicing.
As a customer, this means youll still deal with the same lender you financed your home through. Your service wont be interrupted and you likely wont even notice any differences. Your lender will send you a letter if your home loan changes investors, with all of the specific information regarding this transaction, and will note that your servicing will remain the same.
Not all banks and lenders are able to keep home loan servicing after a loan has been transferred, however. If this is the case, your servicing will transfer to another lender. When your loan is sold, you’ll be notified of this change with a transfer notice within 30 days of the loan sale. When you receive this notice, your lender will let you know if your servicing was transferred and will provide details with your new contact information.
Who Buys Mortgage Loans
So now we know why your mortgage loan may be sold, well take a look at who may buy it. After all, it would be good to know exactly who you owe your money too wouldnt it?
Fannie Mae and Freddie Mac purchase the majority of the mortgage loans on the secondary market.
Freddie Mac is the more familiar name of the Federal Home Loan Mortgage Corporation . After buying mortgages, Freddie Mac bundles multiple loans together and sells shares in those bundles on the financial markets as Mortgage Backed Securities.
The FHLMC makes a guarantee that investors who buy these shares will receive a guaranteed payment each month, and the US Government Treasury Department backs this guarantee.
Fannie Mae is the Federal National Mortgage Association, and like Freddie Mac, they also buy mortgages, bundle them together into mortgage-backed securities and then sell shares in the MBS on the financial markets.
Again, as with Freddie Mac, investors receive a monthly payment, and this is backed by the US Treasury Department.
The main difference between the two is that Fannie Mae buys mortgages from the larger banks and Freddie Mac purchases loans from smaller lenders.
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Know The Difference Between A Loan Owner & Servicer
Thereâs a difference between the owner of the mortgage and the mortgage servicer. They donât necessarily have to be the same company, said Matt Hackett, operations manager for Equity Now, a direct mortgage lender.
The owner is the financial institution that loaned you the money. The servicer is the company that issues the monthly mortgage statements and handles day-to-day loan management.
âA consumer has a right to know when their mortgage is sold and when their servicing is sold, and they get a new servicer,â said Hackett.
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