Have you ever taken out a loan from a mortgage company or bank only to find out a few months down the road that it’s been sold? Don’t be surprised if this happens to you — multiple times — because it’s common that lenders sell mortgages.
Federal banking laws allow financial institutions to sell mortgages or transfer the servicing rights to other institutions. Consumer consent is not required when lenders sell mortgages. It might seem alarming because a mortgage is something very personal to a consumer, a symbol of your home ownership. But banks and other financial institutions view your mortgage differently. To them, your mortgage is just another financial asset. And that means lenders handle your home loan much more differently than you might.
Questions might be swirling around in your head. Why is your servicer allowed to do this? What does it mean for you? Are the terms of your mortgage going to change? Don’t panic if you discover that your mortgage now belongs to another institution. Remember: a loan is a loan no matter who owns it. Your interest rate, payment amount, type of loan (fixed rate or ARM), etc. cannot change just because your loan has been sold. The only thing that’s changing is the address you’re sending your payments to.
To help put your mind at ease, here are answers to all of the questions you might have about your lender selling your mortgage:
Why do lenders sell mortgages?
There are basically two main reasons why a lender might sell your mortgage.
1. To gain capital
When a loan gets sold, the lender has basically sold servicing rights to the loan, which clears up credit lines and enables the lender to lend money to the other borrowers. Much as we might think that financial institutions have countless amounts of cash on hand, the truth is that lenders needs to keep a large enough pool of money on hand in order to lend to other people.
Let’s say the bank is lending you $200,000 to buy a home. Most mortgages last for 15 or 30 years — and you’re certainly not the only person taking out a mortgage. The bank would need to have billions of dollars in cash to issue loans to everybody. That’s one of the main reasons why it sells loans like yours.
2. To make money
Lenders can make money by charging fees when the loan originates, earning interest from your monthly payments, and selling it for commission. Administering a loan has value because it earns the mortgage servicer money — a small percentage of the interest rate you pay will go to the servicer.
Is your mortgage being sold a bad thing?
In most cases, no. Unless you are delinquent or behind on payments, the terms of your loan will not change because you’ve already borrowed the money and signed off on it.
What rights do I have?
The most important thing to take note of is that your lender must provide you with a loan ownership transfer notice when your mortgage is sold. The new owner of your loan must notify you within 30 days of the effective date of transfer.
Included in this notice should be the following information:
- The new owner’s name
- Address and telephone number of new owner
- The person who can resolve issues concerning your loan payments or any right to rescind the loan (if different from new owner)
- Date of transfer
- Whether the transfer of ownership is recorded in public records.
Do the terms of your mortgage change?
The short answer is: no. The new servicer of your loan is legally not allowed to change the terms of your previous loan. This means that things like your interest rate, life of your loan, and payment date must remain the same, even under the new lender.
In regards to the escrow in your home, the new servicer will reevaluate your loan to determine if a sufficient amount of money is being collected each month. If your escrow, as well as your monthly payments towards property taxes, mortgage insurance, and/or hazard insurance are deemed insufficient, it’s possible the new servicer of your loan could increase your monthly payment.
It’s also important to note that your new mortgage servicer cannot force you to establish an escrow account, if it was previously stated that you were contractually able to pay taxes and insurance on your own under your former loan. However, if this stipulation was not specifically stated in your previous mortgage contract, or was just never discussed between you and your previous lender, then it’s very possible (and legal) that your new servicer can require you to establish an escrow account with them.
How come I didn’t know this transfer might happen?
Did you read your contract? Really? It’s mandatory for lenders to disclose whether your loan will be sold and the percentage of loans it sells. Better dig out that mortgage contract again.
What should I do once I hear from my new servicer?
You’ll want to read the first mortgage statement you receive from your new lender carefully — verify that all the information it lists is true and accurate. If you’re in the middle of applying for a loan modification, you may have to begin the process all over again.
Note that dealing with a new company for your mortgage means that you may have to fill out paperwork that might look different, talk with new staff, and send your payments to a new address. Don’t be afraid to reach out to your new servicer if you have questions.
What if I run into a legal issue?
“Consumers should not be collateral damage in the mortgage servicing transfer process,” said Consumer Financial Protection Bureau Director Richard Cordray.
Mortgage companies have a legal obligation to protect consumers during loan transfers between mortgage servicers. That means paperwork should not be lost, servicers should not lose track of a homeowner’s loss mitigation plans, and they should not hinder a consumer’s chance to save his or her home from unnecessary foreclosure. Understand that the process of transferring servicing rights is challenging logistically. It might involve moving thousands of loan documents, which explains why issues arise.
If your payment is returned and your servicer notifies you that it’s no longer servicing your mortgage, know your rights. You do not want to end up in a situation where you receive a notice in the mail stating that you’re late on a payment — and then wonder confusingly why you were never notified that you needed to send your payment to a new servicer.
If you have a complaint or question about the transfer of your loan, you have a legal right to send a written request or note to your previous lender. By law, your lender is required to respond in 20 business days within receiving your letter, and in 60 business days, must either correct the addressed problem (and also give you notice that it has been corrected), or give you, the borrower, a written notice why the problem is not being corrected. Either way if you need a problem corrected or are just requesting information, you will get a response from your lender — it’s the law that they do so.
Understand that both your old and new servicers must notify you about the transfer of your servicing rights no less than 15 days before the effective date of transfer. If you never received the servicing transfer notice, you can also file a complaint with the CFPB online. You should also consult an attorney.
Remember, receiving a notice that your mortgage has been sold should not be taken personally. As long as you have been notified in a timely manner, your new servicer accurately lists your information, and you send in payments to the right address you should have nothing to worry about.