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. Don’t panic! This happens all the time, and you shouldn’t see many (if any) changes. So why does your mortgage get sold—and 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.
What does a mortgage being sold mean for you?
The short version: When a loan is sold, the terms of that loan don’t change. But where a mortgage-holder submits payment and receives customer service may change as the loan gets sold. And that could affect a few things.
The level of service that you receive may vary depending upon who the servicer is. Certain servicers might offshore a lot of that work, so when you would call into servicing, you could get a call center somewhere and people were less than knowledgeable about the product.
The new servicer might offer different payment options and may have different fees associated with payment types, so be sure to check any auto payment or bill pay functions you’ve set up.
The basics of mortgage servicing
To understand why mortgages are sold, it’s important to understand some basics.
First, when you take out a mortgage to buy a home in [city], a lender approves your loan and you make payments to a loan servicer. Sometimes, the servicer and the lender are one and the same. More often, they’re not.
The servicer collects the payment and disburses it out. They distribute the payment to the investors, send property taxes to the local taxing entity, and pay homeowners insurance. They are taking care of all the payments coming in and getting them distributed to the people they belong to.
Servicers can sell your mortgage
Lenders can enter agreements with servicers to purchase batches of loan servicing. Or lenders may shop around for a servicer if they’re carrying too many loans on their books.
Servicers are interested in buying loans in order to sell other products to their new-found customers. Many lenders originate loans, and then proceed to sell off the servicing or the loan itself. If the servicer changes, the customer must receive a notification. There will be a grace period in case a borrower accidentally sends payment to the wrong place.
Lenders often sell the loans to financiers as a mortgage-backed security for investors or to government-sponsored entities like Fannie Mae, Freddie Mac, and Ginnie Mae.