Why Does My Mortgage Keep Getting Sold
A letter arrives in the mail and tells you your mortgage has been sold. It also informs you to send your monthly payments to a new address. Dont panic! This happens all the time, and you shouldnt see many changes.
I would say probably 30% to 50% of the time going to eventually end up mailing their payments somewhere else different from when they first originated it, says Rocke Andrews, president of the National Association of Mortgage Brokers.
So why does your mortgage get soldand why can it happen multiple times? Banks and mortgage servicers constantly check the numbers to find a way to make a buck on your big loan. It all takes place behind the scenes, and you find out the result only when you get that aforementioned letter in the mail.
Who Owns Your Home Loan
- Theres a lot of confusion with regard to ownership here
- The bank that originally funded your mortgage may have nothing to do with it today
- It could have been sold off years ago to another company
- But if they still own/service it, they may not be keen to offer you a refinance
- In that case, just look elsewhere for a new lender who actually stands to benefit
Some of the confusion regarding whats in it for them might come from the fact that ownership of the loan is unclear.
So even though say Bank of America closed your loan, it could have been sold to Wells Fargo or some other lesser-known loan servicer after the fact.
That would explain Bank of Americas willingness to refinance your mortgage. They can make money on closing costs and make money by selling it off again or by servicing the loan.
If they actually hold onto the mortgage the second time around, they may not want to refinance it again in the future.
But if they sell it again, theres a good chance youll get an offer to refinance down the road. They may even urge to you cash out to make the loan even bigger and more profitable.
If you consider a mortgage broker, who closes loans on behalf of a variety of lenders, they can refinance your mortgage over and over with different banks and always make a profit regardless of where the loan ends up.
Theyll still earn their commission even if your interest rate goes up, down, or sideways.
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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How To Avoid Having Your Mortgage Sold
If youre really concerned about your mortgage changing hands, you should think about it before you ever apply for a mortgage and seek out a portfolio lender. A portfolio lender is an institution that keeps loans within their own portfolio instead of selling them.
If you already have a mortgage, there is likely a clause in the contract that permits its transfer to a new owner. If thats the case, there isnt much you can do to stand in the way of a sale other than refinance your mortgage.
While rates are low right now, keep in mind that refinancing comes with thousands of dollars worth of closing costs. Compare rates, and use Bankrates refinance calculator to determine whether its worth the extra costs.
How Fannie Mae And The Secondary Mortgage Market Work
Fannie Mae and Freddie Mac operate in the secondary mortgage market.
There, they buy mortgages from lenders and repackage them as mortgage-backed securities . Fannie and Freddie then sell MBS to investors all over the world.
Going back to the example above: The 125 mortgages Smith Lending has sold are actually an asset. Smith can take those loans and sell them to Fannie Mae or Freddie Mac.
Once the sale is complete, Smith has new cash and can now fund additional mortgages in the local community.
You can see the benefit. By purchasing mortgages, Fannie Mae and Freddie Mac enable lenders to make more loans. With more lending money available, consumers keep buying homes, and the real estate market stays afloat.
In addition, these companies take worldwide investor money and place it into the US housing market.
More money for mortgages means you guessed it lower mortgage rates. Since Fannie and Freddie operate nationwide, the result is that mortgage rates are largely similar across the country.
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How To Protect Yourself When Your Mortgage Is Sold
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 theyre originated. Regardless of which company owns your loan, a loan is a loan and whats on your mortgage note hasnt 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 .
Is it legal for a lender to sell my loan?
How do I find out if my loan has been sold?
Is the servicing sold too? Are the servicer and lender the same company?
Will my payment change if my loan is sold?
What if I send my payment to the wrong lender?
What if I dont receive any notices, and my servicer has changed?
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.
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.
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Why Banks Sell Loans They Make
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If you carefully selected your lender for a mortgage, a student loan or some other type of debt, you might be surprised or even upset to receive a letter telling you that the obligation is being sold to another financial institution.
Although theres nothing inherently bad about loans being sold the terms of the loan will not change you could run into problems if you fail to receive a notice or paperwork gets lost. That could cause you to miss payments, costing you late charges and even hurting your credit. Heres a look at why loans are sold and how you can protect yourself.
What To Expect With Your New Servicing Company
Its a common practice for lenders to sell mortgages, and its entirely legal for them to do it without your consent. What they must do, however, is to provide you with a warning that your loan will be serviced by a different company.
Both the old loan owner and the new loan owner must send you notification no less than 15 days before the transfer. The new lender must provide contact details within 30 days after the transfer is complete so you know where to send payment and how to get in touch if you need help. And dont worry if you send payment to the old lender you get a 60-day grace period, so your loan wont be delinquent if you make a mistake with that first check going to the old company.
What about the details of the mortgage? Your payment will stay the same unless you have an adjustable-rate mortgage , in which case, the interest rate could adjust. Your loan would continue to function the same as it did with the old lender, so if you had 19 years left to pay it off, you would still have 19 years left. The only differences would be the name of the company that you write on the check and the address where you send it.
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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
- Down payment requirements
- Private mortgage insurance
- 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.
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.
Welcome to the secondary mortgage market.
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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.
Can I Still Make Automated Payments On My Loan
In many instances, yes, but be sure to check with the new mortgage servicer. You might need to re-establish your automatic payment schedule and details. You will still be responsible for monthly payments while setting up auto payments, so be ready to make a payment by phone or mail to keep current with your new loan owner. Use the contacts in the notices you receive from your old and new mortgage servicers to ask any questions about making payments.
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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 Is Fannie Mae
Fannie Mae short for the Federal National Mortgage Association dominates the secondary mortgage market. But what exactly does that mean?
This frees up money so those companies can keep on lending and buyers can keep on purchasing homes.
In large part, Fannie Mae and Freddie Mac are also behind the rate you get from your mortgage lender. The two play a big role in keeping U.S. mortgage rates relatively low.
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Wait Seriously My Mortgage Was Sold What Are My Rights
There are two components of your loan that may be owned:
The Mortgage Note
The Servicing Rights
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:
Why Do Banks Sell Mortgages
Banks sell mortgages for two basic reasons: liquidity and profitability.
Banks need to keep pools of money on handboth to meet their federally mandated cash reserve requirements and to have funds available for account holders and customers. Selling mortgages frees up their capital, ensuring they can handle withdrawals and enabling them to make loansincluding other mortgagesto applicants. It also gets debt and default risk off their books.
Selling mortgages not only removes liabilities from the balance sheet but also raises cash quickly. And not just fast cash, but a quicker profit. Banks collect immediate commissions on the loans they sell. By contrast, the mortgage interest the bank earns over the life of your loan takes decades to collect.
In a nutshell, selling loans is more profitable than holding onto them. Banks can make money by writing a mortgage and then collecting the interest on it for years. But they can make even more by issuing a mortgage, selling it , and then writing new mortgages, and then selling them.
Sometimes banks just sell the mortgage debtthe loan principaland keep the mortgage servicing rights, which means they continue receiving the borrower’s repayments. Often, though, they sell the entire mortgageboth the debt itself and the servicing rights.
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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.