It happens all the time. But if you’re not aware of it, you may think you either did something wrong or your lender is playing games.
Why Loans are Sold
To banks, a mortgage is just an asset, money due them (along with the risk associated with that loan). Banks routinely buy and sell mortgages on the secondary market. The bank who is selling a loan (or loans) is normally doing so to free up capital.
They will either sell an individual loan to another bank directly or a large number of similar (loan amount, risk level, etc) loans as an entire package to government agencies like Fannie Mae or Freddie Mac, who in turn will sell that collection of loans as a bond.
Most banks do not have the cash on hand to actually service each and every loan that they create, so selling loans is an inherent part of their strategy. Generally speaking, the larger the bank the more likely you’ll see it occur, but there’s no exact rhyme or reason to it.
You will be notified via good old snail mail by both your old (original) lender and your new one, referencing the change. The letter is required to inform you of the following
- The effective date of the transfer of loan servicing
- The name, address and phone number of the new bank servicing your loan
- A statement to the effect that, although the loan servicer has changed, no terms of the original mortgage that you signed can or will change
How this affects you
In reality, it just changes whom you send the mortgage payment to. It’s in your best interest to contact both banks to confirm everything, making sure to verify that the number on the letter can also be found on their public website. If you pay electronically, you will need to change how the auto-payment gets made through your bank.
The new bank may have different criteria about the amounts they like to see in escrow and will do their own analysis, so they may make adjustments regarding your taxes, insurance (or PMI if you have it). Also, if you’re going through a loan modification, your loan getting sold can and likely will have adverse effects.
What to do if you have any issues
Should any headaches arise or you spot mistakes made, the first thing to do is write a letter sent via regular mail to the new bank using the address they have provided to you (and not sent with your normal mortgage payment, but a separate letter). I suggest sending it with some sort of tracking so you can confirm they’ve received it, and when. If that doesn’t get things resolved, the next step is to file a complaint with Consumer Protection. The good news is that you have a 60 day grace period, should you accidentally send a check to the original bank after the loan was sold.
Terms to Know
- Loan originator: The person who sat down and went through the paperwork you actually signed. They receive compensation for submitting a loan that is accepted by a bank
- Lending institution: The bank that was listed on the loan documents that you signed when you first got the loan
- Servicing company: This is the bank you are currently supposed to send mortgage payments to
Banks selling their loans is nothing abnormal, and in reality, is probably more the rule than the exception. Sometimes it happens immediately upon your closing. Generally, there won’t be any issues, but you do want to review the documents they send you and double check them for any errors.