The Chicago Real Estate Minute
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My loan was sold to another lender — what the …?

5 minute read

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.

What happens

mailboxes in a row
Image by Brigitte Werner from Pixabay

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.

hand writing note next to cash and house symbol
Image by mohamed Hassan from Pixabay

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.

Red white puzzle pieces 3D
Image by PIRO4D from Pixabay

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

Final Word

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.

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