Why Do Lenders Sell Mortgages?

Congratulations! You've finally achieved your dream of owning a home. After saving up for a down payment, making an offer, and closing your loan smoothly, you receive a letter in the mail a few months later informing you that your loan is being sold. But why? And what does this mean for you? Let's delve into why lenders sell mortgages, the role of loan servicers in this process, and how it will impact you.

Mortgage Originators vs. Lenders vs. Servicers

When you apply for a loan, the mortgage originator, whether working for a financial institution or independently as a mortgage broker, will guide you through the process of obtaining a mortgage. Lenders, such as banks or mortgage companies, actually fund and own your loan, earning income through interest charges. Servicers, on the other hand, manage your loan post-closing, handling payments and resolving any issues that may arise. They derive income from a percentage of your mortgage payments.

Why Do Lenders Sell Mortgages?

Lenders sell mortgages for various reasons, such as freeing up credit to issue new loans or raising immediate funds. Mortgage investors, like Fannie Mae and Freddie Mac, buy loans on the secondary market. While lenders must notify you of the sale, it may not affect your servicer. Servicers may not even own your mortgage as they focus on managing your loan and providing customer service.

What To Do When Your Mortgage Is Sold

If your mortgage is sold but the servicing rights remain with your lender, there should be no change in your interaction. However, if a new servicer is appointed, ensure they comply with regulations and provide timely information. If you have issues with your servicer, you can contact them or consider refinancing to switch to a new provider.

The Bottom Line

Lenders selling mortgages is a common practice to facilitate new loans. While you will be informed of the sale, your day-to-day dealings will remain unchanged unless your servicer changes. Servicers manage your payments and accounts, and a notice will be given if your servicing rights transfer to a new company.