Getting a letter in the mail informing you that your mortgage has been sold may be jarring for many homeowners.
A number of questions may immediately spring to mind: What does this mean? Do my payments change? Did I do something wrong?
Hearing that your mortgage has been sold may churn up memories of the housing crisis back in 2008. And with interest rates rising and the real estate sector experiencing a bit of upheaval, homeowners may be rightfully concerned that they’ll somehow end up getting the short end of the stick, like so many did a decade and a half ago.
The vast majority of homeowners should be relieved to learn that having your mortgage sold doesn’t actually mean a whole lot. In fact, perhaps the most consequential change is that you’ll simply be sending your payment to a different servicing company. And, if you keep making your payments on time, it should be a smooth transition process.
“It’s very common for a mortgage to be sold,” says Keith Gumbinger, vice president at HSH.com, an online home loans consumer resource. The only thing homeowners should do, Gumbinger adds, is to “make sure everything is in order with the new servicer.”
Why Did My Mortgage Loan Get Sold?
It’s more or less the industry standard that a loan originator – that is, the company that originally doled out a mortgage – would sell it to a new company. “A loan is originated, and a lender can keep it on their books or sell it to another party who consolidates it,” Gumbinger says.
Companies make money originating loans, and there’s further money to be made by servicing those loans. Some companies specialize in one or the other (many companies do both), and as a result, will focus their efforts on origination or servicing. The main purpose behind selling a mortgage to a servicer, though, is to ultimately securitize them–bundle them up with other mortgages and sell them to investors, who earn a return from mortgage and interest payments.
“Loans are passed around all the time because people are looking to tune their portfolios,” Gumbinger says. “[This process] has been around for decades – the originate-to-sell model has become the dominant model in the industry.”
As for what the actual process of having your mortgage sold looks like?
“You’re supposed to, per disclosure compliance regulations, get a ‘goodbye’ and a ‘hello’ letter,” says Nicole Rueth, a senior vice president and producing branch manager for The Rueth Team at Fairway Independent Mortgage Corp. “You get a letter from the company that originated the loan, and a letter from the [mortgage’s] new owner. The letter says who the mortgage was sold to, what you should expect, and a list of your rights,” she says. That’s standard protocol, however, Rueth warns that it “doesn’t always happen.”
But assuming everything goes according to plan, homeowners will be notified that their mortgage has been sold, and then get another letter from the new servicer telling them where to send their future payments. In effect, homeowners really shouldn’t need to do much other than send their payments to the new company.
If you learn that your mortgage has been sold, don’t panic! This is perfectly normal, and experts say, something that homeowners should expect. The process is regulated, and should, in most cases, amount to a smooth transition.
What Can Borrowers Do If Their Mortgage Is Sold or Transferred?
If your mortgage is sold to a new servicer, there isn’t a whole lot you can do about it. But again, experts say there isn’t necessarily a whole lot that homeowners should want to do about it, as not much should change from the homeowner’s perspective.
The process of having a mortgage sold is fairly streamlined and mostly takes place behind the scenes between the originator and the new servicer, or from one servicer to another. Homeowners need to wait for contact from the new servicer in order to verify that all of the information related to their home and outstanding balance is correct, and that to learn where they need to send payments going forward.
For homeowners anxious about not hearing from a new service provider? Rueth says not to sweat it – those companies are now bondholders, and they’ll want to make sure they get their money. “They’ll call you,” she says.
The streamlined process – that is, being notified by both your originator and new servicer that your mortgage is changing hands – is mostly due to regulations and rules put into place by the Dodd-Frank Act following the financial crisis more than a decade ago.
“The Dodd-Frank rules focused on getting mortgage servicing trails better organized,” says Gumbinger. “You need to be notified and given contact information within 15 days before your loan changes hands,” he says. So, as long as a servicer wants to run afoul federal regulations, homeowners should have a very clear idea of who or what holds their mortgage, and when the transaction occurred.
Once a mortgage is sold, though, homeowners should change their payments (if they’re automated) to make sure they’re going to the new servicer. If they accidentally pay the old servicer or originator, Rueth says that the originator should forward the payment to the new servicer until everything is sorted out. It can’t hurt to call the new and old servicer to make sure.
How to Avoid Having Your Mortgage Sold or Transferred
Another key question for many homeowners: Is there any reason why you’d want to avoid having your mortgage sold?
Perhaps, says Rueth, who adds that “there’s no turbulence or downside to having your mortgage sold – until there is.” Problems can arise, she says, when homeowners don’t pay attention to correspondence from their servicer (maybe they don’t check the mail for several weeks), or when there’s miscommunication at either the originator or the new servicer. Some banks, for example, are massive, and have multiple departments and arms – miscommunications can happen, she says.
While homeowners are generally not going to be able to stop their mortgages from being sold, there is one thing they can try: Asking nicely. “Ultimately, if you want your servicing to stay with a lender, you can ask,” says Rueth. But, she says, asking does not equate to a guarantee that it’ll happen.
Gumbinger says that homeowners can also try getting their mortgages from small, community banks or credit unions, which may lower the odds that a mortgage is sold to a new servicer. But, like Rueth, he warns that homeowners can’t prevent it from happening. “The fact of the matter is that there’s really nothing that you, as an individual borrower, can do to retain that servicing forever.”
And, as mentioned, the majority of homeowners probably shouldn’t worry too much about their mortgage being sold – it’s more or less a part of the process. There may be a couple of issues to iron out, in some cases, but Gumbinger says that the process itself is regulated and should be smooth.
“Most people probably don’t care [if their mortgage is sold], as long as they know where they need to send a check, and that it’s going to the right account.”