What's Up With This!
You've just moved in to your new home. You've unpacked, and you're starting to settle then you receive a letter informing you your mortgagor has SOLD your new mortgage and it will now be serviced by a new institution. Suddenly your asking, What gives, Is this really allowed? Have the terms of the mortgage changed? Why on earth is my lender selling my mortgage?
You may not realize it,but among the many documents you signed when you first applied for a loan was a Mortgage Servicing Disclosure. This document tells you what percentages of the lender’s loans are sold. More often than not, the majority of loans approved and funded by a particular mortgage company will be sold to someone else. It's important to note that just because your mortgage has been sold, this does not change the terms of your loan. Your loan payment and interest rate will not, and cannot, be impacted. So take a breath, It's OK.
You may find your self wondering, “Why go through all the effort of originating, approving, and funding a loan just to forgo all the interest that new loan provides?” The answer is surprisingly simple. If not for selling the loan, the lender would soon run out of money to lend. So in reality the selling of the loan is good for you and the next buyer.
Mortgage companies today work with a line of credit. It’s not as if the mortgage company approves a loan then opens up a vault full of money to fund your mortgage. When it’s time to fund your loan, the lender taps into the line of credit for the necessary amount. In order to replenish this line of credit, the lender really does need to sells the loan to a third party. Once the loan is sold, the lender has more funds to make more loans. Who is the loan sold to? Many times it’s sold to other mortgage companies, but ultimately the loan is sold to either Fannie Mae or Freddie Mac government institution.
The loan buying and selling is called the secondary market for mortgages. The secondary markets are robust and active and keep the mortgage market liquid. If we didn't have secondary market, there would be fewer loans issued and still fewer choices for buyers in the market to buy a home. When your loan is sold it’s not because your original lender doesn’t appreciate your business, it’s so they can continue to help other home buyers just like you obtain a mortgage for their new home.
Revised from May2019 Market Leader Newsletter