Curve

What should you do if your mortgage is sold?

Gina Pogol
The Mortgage Reports editor

In this article:

Mortgage companies rarely keep the loans they fund very long, so it is likely that your mortgage may be sold at least once during the loan’s lifetime. Here are the key things to know if your mortgage is sold:

  • The terms of your loan cannot change just because someone else collects the payments. Everything should remain the same except the name and address when you make your payment. Anyone trying to change your terms is a scammer.
  • When your lender sells your loan, it must notify you in writing within 30 days of the sale. This notice should include the name and contact information for the new owner of your loan. It should give you an effective date for the sale.
  • If your loan servicer changes, it will inform you in writing where to send payments and who to contact with questions. If you already sent your payment to the old lender, no worries. You won’t incur a late fee because there’s a 60-day grace period following the transfer. If you don’t get a goodbye letter from your old servicer, don’t just start sending checks to a new one–it could be a scam. If you have any doubt at all, call your old lender and ask if your loan has been sold, and to whom.

Most mortgages are sold at least once

Once you close on your home loan, you might breathe a sigh of relief that it’s over, throw your paperwork in a drawer, and forget it. But that might not be the end of it if your lender is one of the majority that sell mortgages shortly after they close. So what should you do if your mortgage is sold?

In that case, you’ll have to revisit your new loan within a few weeks or months of closing. And you may have to do this again several times over the life of your mortgage.

Verify your new rate (Nov 20th, 2018)

Why do mortgage lenders sell their loans?

Back when Jimmy Stewart played banker George Bailey in It’s a Wonderful Life, banks made home loans to local folks, and kept them until the borrowers paid off their houses.

But today, lenders don’t usually know their borrowers personally. They sell (and sometimes buy) loans after closing, for several reasons.

percentage of mortgage loans sold

Source: Federal Reserve Bank

Mortgage banks

Mortgage companies, aka mortgage banks, rarely keep the loans they fund very long. That’s because they don’t have depositors to provide them with the masses of cash needed to keep loans on their books.

4 Types Of Mortgage Companies: Which Will Give You The “Best Deal?

Instead, mortgage banks borrow money for a short period of time. They lend it to consumers to buy or refinance their homes, and then sell the loan to another institution. They repay their short-term loan, take their profit, and repeat.

Depository institutions

Depository institutions use money from their customers’ checking, savings and other accounts to fund mortgages. They may sell their loans to investors, or they may keep them on their books.

Loans kept on the books are called “portfolio mortgages.” Lenders that offer these loans can be a little more creative with their program, because they assume the default risk and not passing it on to investors.

What Is A Portfolio Mortgage?

These lenders may sell and buy loans to balance their portfolios. For instance, if a lender’s portfolio contains a lot of loans from California, it may want to sell off some of those mortgages and buy some from the Midwest.

That limits their exposure if there is a natural or economic disaster in the Golden State.

Loan servicing

In the old days, you might make your mortgage payment by driving to your local bank and leaving a check with a teller or mortgage officer. Today, loan servicers have taken over.

Loan servicers process mortgage payments, deal with borrower inquiries, track the principal and interest paid, manage impounds (paying property taxes and insurance) and may initiate foreclosure if borrowers fail to make their payments.

The servicer may or may not be the same company that made the loan.

How Much Do Lenders Make On Your Mortgage Loan?

Most loan payments have three parts — the return of principal, interest to the owner of the loan, and a small percentage that goes to the company processing and collecting your payment.

Sometimes, all three of these parts go to a single company. But one company can own the loan and the interest, while another can own the servicing rights and get a small cut for its work. Your lender may sell the whole loan or just the servicing rights.

Either way, you’ll be sending your payment to a new place.

Avoiding scammers

The Real Estate Settlement Procedures Act requires lenders provide a Mortgage Servicing Disclosure Statement within three business days when you apply for a home loan.

If you don’t want your loan to be sold, stick with lenders who indicate on the form that they don’t sell their loans.

Are Bi-Weekly Mortgage Plans A Rip-Off?

Note that the terms of your loan cannot change just because someone else collects the payments. Everything should remain the same except the name and address when you make your payment. Anyone trying to change your terms is a scammer.

Hello and goodbye

In addition, when your lenders sells your loan, it must notify you in writing within 30 days of the sale. This notice should include the name and contact information for the new owner of your loan.  It should give you an effective date for the sale.

Sometimes you’ll have the same servicer after a loan is sold, so nothing will really change.

What To Expect After Your Mortgage Closing

If the servicer changes, it will inform you in writing where to send payments and who to contact with questions. If you already sent your payment to the old lender, no worries. You won’t incur a late fee because there’s a 60-day grace period following the transfer.

What should you do if your mortgage is sold? Not this

if you don’t get a goodbye letter from your old servicer, don’t just start sending checks to a new one. You and other victims might be funding Mr. and Ms. Scammer’s around-the-world voyage with your payments.

If you have any doubt at all, call your old lender and ask if your loan has been sold, and to whom.

What are today’s mortgage rates?

Today’s mortgage rates are still moving up and down within a narrow range. If they go up before you get a chance to lock, odds are they will probably drop back within a day or two, until something big changes.

If you’re shopping for a mortgage, compare several offers from competing lenders to get the best deal.

Verify your new rate (Nov 20th, 2018)