When your lender approves your mortgage, it can seem like the beginning of a long relationship. However, there's a good chance that you'll eventually get a notification that your mortgage has been sold to a different company, sometimes more than once. This might sound like a big deal, but it shouldn't be a cause for alarm.
What it means to sell a mortgage
To understand why loans are sold, it helps to learn a little about who does what behind the scenes.
- The mortgage originator is the company you use to help you apply for the loan. It may or may not be the same as the mortgage lender.
- The mortgage lender is the institution that lends you the money to buy your home.
- The mortgage servicer sends your statements, collects payments, manages the escrow, and handles other administrative tasks.
Initially, your mortgage lender might also be your mortgage servicer. But the lender can bring in revenue by selling the loan and the servicing rights to another institution. They also have limits on how much money can be lent out at any one time, so they sell loans to servicers to free up money that they can then make available for other borrowers.
How homeowners are affected by a mortgage sale
As a mortgage holder, you are not greatly affected when a lender sells your loan. You will owe the same amount each month, and you will have the loan for the same length of time. Of course, if you have an adjustable rate mortgage, the interest rate could go up or down, changing your payment amount – but that could happen with your original lender as well.
However, when your loan is sold, you will send your monthly payment to a different servicer, and if you have questions, you will contact a different company. Unless you're writing a check every month, you'll want to update your online payment with the new address or sign up for auto pay with the new servicer's website.
What to do when your loan is sold
If you receive notice from your original lender that your loan is being sold, watch for mail or email from the new servicer explaining where to send your payment. The new servicer is generally required to contact you within 15 days of the loan being transferred unless the communication is combined with the first notice.
1. If you've set up automatic payments from your bank or credit union, make sure to update the payments with the new account information.
2. When you get your first statement from the new lender, review it carefully to verify the loan information and payment amounts are correct.
3.If you were in the middle of a loan modification – for example, refinancing to get a better interest rate – you probably won’t need to start over, but check with the new institution to be sure. In addition, retain all the records from your loan modification in case the new servicer has questions.
A common occurrence
Although it can be confusing to find out your lender is soon to be out of the picture, remember that your loan will not be affected. In today's mortgage industry, loans are frequently sold, and this ultimately helps lenders extend credit to more homebuyers. However, in the unlikely event that your loan terms change or your payment is lost, notify the Consumer Financial Protection Bureau.
