Have you received a letter saying your mortgage has been sold? This may seem troubling, but in this article we’ll explain why it happens and why it’s no cause for concern.
When you purchase a home, you go through a detailed loan qualification process. The lender, lending agent, or broker goes through your mortgage application, searching through your income, debt load, credit, and financial history to make sure you are a quality borrower.
Once the mortgage is finalized, you get to move into your new home.
But weeks, months, or even years later, you get a letter. This letters states that your mortgage has been sold to another organization.
After the long process, after bringing multiple documents, searching your credit score, and printing out bank statements, the lender turns around and sells the loan to someone else. It could be another bank, or an organization like Fannie Mae.
Don’t worry. This is an extremely common practice in the lending industry, and it’s probably more common to have your mortgage sold than to have it never sold.
Best of all, nothing has changed. The biggest difference, from your perspective, is that you may have to make payments to another address, assuming you are still mailing your payments. But the payment amount, terms, and all other details remain unchanged.
“Your Mortgage Has Been Sold” Letters: What They Mean for Your Mortgage Payments
When a mortgage is created by a lending company, they have a variety of options. First, they can keep the loan in their own portfolio, collecting on the principal and interest every month. This is the choice for many companies, but it’s not the only option.
Another option is to transfer servicing of the loan. This essentially means that while they keep the loan profits, another company, who receives a portion of the interest payments, assumes responsibility for collecting and recording (aka “servicing”) the payments.
They can also sell the loan to another company while maintaining the servicing. In this case, they get a lump sum payment but keep a portion of the interest to keep servicing the loan.
Finally, they can sell off the loan entirely and have another organization both service and own the loan.
Why are Mortgages Sold?
Selling mortgages on the “secondary market” is a fairly common practice, and many homeowners will eventually see a letter saying that their mortgage has been transferred from one organization to another. If you get a letter saying your mortgage has been sold, you are not alone and you haven’t done anything wrong.
When you take out a mortgage to purchase a home, the lender approves the loan and you make payments to a loan servicer. In some situations, the lender and the servicer are exactly the same. In other cases, they are different. In many other cases, they start out the same but, through transferring the mortgage, they become different.
A servicer is the organization that collects payments. They distribute the payment accordingly, making smaller payments to investors, taxes, insurance, and other areas. They essentially take care of all the payments coming in and ensure that money goes to the right place. A portion of the interest that you have paid on the loan goes to the mortgage services.
Regardless of the details, mortgages are sold in order to create more liquidity in the market. When massive companies in the mortgage industry purchase loans, it essentially gives more capital to the lender. Instead of holding a loan for, say, $500,00 and receiving payments, they get a lump sum of cash from the purchaser and are then able to turn around and create more loans. Basically, purchasing loans on the secondary market creates more lending, which is a good thing for anyone who wants to purchase a home.
Why You DON’T Need to Be Concerned
You don’t need to be concerned because, in all reality, nothing has really changed. Yes, you may have to make payments to a different lender (if you actually mail payments and aren’t on an automatic withdrawal), but the specific details of your loan will not change. Not one bit.
The lender cannot change the terms, balance, interest, or other details of the loan. The specifics that are listed on the document you signed are the specifics for the entire duration of the loan. The sale of your mortgage to another company will also have no impact on your credit.
So no increase in payment, and no change in the terms or interest. There is also no increase in balance, and your credit score will not be impacted. For these reasons, a transfer of your loan is no cause for concern.
In fact, the reason you receive a notice letter is simply to inform you of the change. Other than that, there is no concern if you receive one of these letters.
“Your Mortgage Has Been Sold” Letters: What to Expect in the Near Future
If your loan has been sold to a new company or organization, there are a few things you should do. First of all, you will receive a separate notice from the new lender. This is due to you in roughly a month, and it will outline the details of new ownership.
You should review the notice thoroughly, as there are details about your upcoming payments. Specifically, look for information on the name, phone number, and mailing address of the new company. Also, look for a date on when your loan will be officially transferred; ownership may have changed hands already, or the change may be coming soon.
You’ll also want to review the notice for individual contact information. There should be a way to get in touch with someone who can answer questions and provide information if needed.
Separately, you should check with the new organization to make sure they have your bank information so they can continue automatic payments. After the first payment is made, it’s helpful to contact the company and make sure they have received your funds.
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