What do you mean you 'sold my loan?'

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Published Date 9/18/2020

Back in the day, consumers borrowed money from a local "building and loan" banker (picture George Bailey in the 1946 movie It's a Wonderful Life). Each month, they would faithfully walk into the bank with their mortgage payment. Today, after procuring financing with a loan professional, it's more likely a letter will arrive by mail telling you your mortgage has been sold.

This is common, so don't freak out. It doesn't change anything except for the address you direct your payment to. Realtor's Tiffani Sherman quotes Rocke Andrews, president of the National Association of Mortgage bankers, saying, "I would say probably 30% to 50% of the time [borrowers are] going to eventually end up mailing their payments somewhere else different from when they first originated it."

So why is it possible for your mortgage to get sold repeatedly? "Banks and mortgage servicers constantly check the numbers to find a way to make a buck on your big loan," says Sherman. "It all takes place behind the scenes, and you find out the result only when you get that aforementioned letter in the mail." She goes on to say that 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," she says.

How this all works: when you take out a mortgage to buy a home, a lender approves your loan, asking that you make payments to a loan servicer, which may or may not be one and the same. More often, they're not. Then the servicer takes your payment and disburses it to investors, sends property taxes to the local taxing entity, and takes care of your homeowners insurance. Only a small portion of the interest you pay on a loan—often a quarter of a percent—goes to the servicer.

Depending on the risk factors attached to each loan, lenders can enter agreements with servicers to purchase batches of loan servicing. Or they may shop around for a servicer if they're carrying too many loans on their books. Even your local credit union might originate your loan but proceed to sell off the servicing or the loan itself. In either case, you must be notified of it and offered a grace period in case you accidentally send a payment to the wrong place. It might be sold to financiers as a mortgage-backed security for investors or to government-sponsored entities like Fannie Mae, Freddie Mac, and Ginnie Mae.

Make no mistake about it. Like other entities, loan servicers seek profits depending on whether a borrower pays on time as well as the term of the loan. For instance, if a servicer receives a quarter percent for servicing a 30-year mortgage, paying steadily for the life of the loan is more valuable to them than a borrower who opts for a refinance within a few years. On the other hand, 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 or to free up money in order to make more loans.

If you're wondering, there is no way to prevent your loan being sold. Verbiage disclosing this lies within the terms and conditions of your mortgage paperwork. "It's just part of making the entire mortgage industry safer, more liquid. By nationalizing the mortgage market, you provide lower rates and better options to the consumer," says Andrews.

Source: Realtor | TBWS

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