After you search for the best mortgage lender and close on your new home loan, you might be surprised to receive a letter stating that a different company has purchased your mortgage. You might wonder how this happened and whether it is even allowed. Here’s what you need to know:
How Lenders Create Mortgages
When you apply for a typical bank loan, you submit an application, receive approval, get the funds, and repay the bank over time. While some mortgage lenders originate and keep loans until borrowers fully repay them. Most focus on creating loans rather than holding onto them.
They cannot usually afford to wait the 15 or 30 years it takes for individual homeowners to pay back their loans. Instead, they originate a home, earn money through the closing costs and discount points. Then sell the loans in order to get enough capital back to make more loans to other borrowers.
Who Buys Mortgage Loans?
Companies and investors have bought and sold mortgages for decades. A mortgage lender sells a home loan to an investment company, which purchases multiple mortgages, bundles them together, and divides them into individual shares. Investors buy and sell these shares as mortgage-backed securities on the stock market. Investors receive portions of your mortgage payments. Many investors prefer these investments because they are tied to physical property and considered relatively safe. The whole process is helpful for making plenty of money available for new home loans and for making mortgage loans less risky for lenders to originate.
Does My Mortgage Change When a Lender Sells It?
When your lender sells your mortgage, the interest rate, remaining balance, and loan term all remain the same. Nothing should change for you other than where you send your mortgage payment.
What Happens When the Lender Sells My Loan?
The company that buys your loan is also buying the rights to service your loan meaning they will collect your monthly payment. Handle any questions you have about your mortgage, and handle disbursements from your escrow account for taxes and insurance.
Before selling your loan, the lender must notify you at least 15 days before completing the transaction, as required by law. At that point the new owner of your mortgage has 30 days to provide you with its name, address, and contact number. You will then need to start sending payments to the new service, whether by check or through electronic funds transfers.
It is a good idea to hold on to any statements around the time of the mortgage sale that document your payments and where they were sent. This can prove you are current on your loan in case there is any confusion in the switchover period. You should also retain documentation of the transfer, such as the notice and any correspondence, for your records.
If you have any concerns or questions about your mortgage sale. Contact your lender or the new loan servicer for clarification and assistance.
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