May 18th, 2017 7:27 AM by Jackie A. Graves, President
When you’re getting ready to buy a home, you spend a lot of time looking at
mortgages, rates, closing costs, and determining how much everything will end
up costing you. You research mortgage companies, find out their
reputations, and typically settle on one that has the most favorable terms, the
lowest interest, and a strong financial background.
And then, sometime after the
home and the sale has gone through, you notice that the name of the lender is
completely different than the company that you chose.
After all that research and
deliberation, your mortgage has been sold.
It can be daunting, and a
little unnerving. Here’s what you can expect.
When you apply
for a mortgage, there are three aspects
to that mortgage.
The person that you will deal
with in person is the loan originator: They do all the paperwork, and they help
you apply for the loan. The originator sends the application to the lending
company. If you meet their guidelines, they approve the loan and you now have
money to buy the house. The lending company may act as the servicing
company as well, but more than likely they will sell it to another company. The
servicing company is who you write your monthly check to in order to pay off
Your loan originator gets paid
a commission for each mortgage that he or she places.
The lender and the
servicer, however, have to make their money back more slowly, usually over the
course of 15 to 30 years.
If the lending company serviced
every loan that they funded, they would have to have many billions of dollars
on hand to ensure they had the cash available to provide those loans.
Most banks and institutions
would quickly be strapped for cash if they serviced every single loan. Instead,
they will bundle them together (usually a bunch of loans with similar risk
levels), and sell them to investors (often government agencies like Fannie Mae
or Freddie Mac). These investing companies sell them as bonds (you may even
have some of your portfolio invested in them). By selling off the loan, the
lending company now has money that they can lend to another prospective buyer.
It’s a common practice for the
lender to sell the mortgage, and it’s entirely legal for them to do it without
your consent. What they must do, however, is provide you with a warning that
your loan will be serviced by a different company.
Both the old loan owner and the
new loan owner must send you notification no less than 15 days before the
transfer. The new lender must provide contact details within 30 days after the
transfer is complete so that you know where to send payment, and how to get in
touch if you need help. And don’t worry if you send payment to the old lender!
You get a 60 day grace period, so your loan won’t be delinquent if you make a
mistake with that first check going to the new company.
What about the details of the mortgage? Your payment will
stay the same (unless you have an ARM loan, in which case the interest could
adjust). Your loan will continue to function the same as it did with the old
lender, so if you had 19 years left until it was paid off, you still have 19
years left. The only difference is going to be the name of the company that you
write on the check (and the address where you send it).
One thing that may have a big
effect on your finances are the terms for loan modification. There are
programs available that allow you to work with your lender to modify the terms
of your loan so that it is easier for you to pay your bills (the interest rate
may be reduced, the length of the loan may be extended, or the loan may be
converted from variable to fixed interest).
If your loan is sold during the
time when you are going through the modification process, you will likely have
to start all over.
But after all that work finding
exactly the right company that you want to do business with, is there anything
that you can do? What are your rights as the borrower when it comes to having
your loan sold?
When you sign the contract for
your loan, there is a clause in most of them that say they have the right to
sell the mortgage to another servicing company. If you’re getting a notice that
your loan is being sold, you basically have two options: go along with it, or refinance
with another company..
If you have yet to sign the
paperwork, there are ways that you can guarantee that your loan will be owned
and serviced by the originating company. All you have to do is ask. Often big
mortgage lenders, like nationwide banks, won’t make that promise. But the
smaller and more local lenders, like credit unions, will. If you want to avoid
having your mortgage sold, start your search with local banks and credit
The bottom line is that your
mortgage is likely to be sold. It helps to keep interest rates
competitive, it spurs the economy, and in all actuality it’s not very likely to
see any negative effects of the sale. But keep in mind that mistakes do happen.
The process is generally seamless, but errors occur. If you notice that your
payment has changed, the terms have changed, or something just doesn’t seem
right, start by calling the new loan servicing company. If that doesn’t work to
get things straightened out, you can file a claim through the Consumer Financial Protection Bureau.