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InstaMortgage (formerly Arcus Lending) CEO Shashank Shekhar is a top 15 loan officer and has been named the No. 4 broker in the country.
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Before you applied for a mortgage, you watched interest rates, compared multiple lending options and scrutinized the terms to make sure you landed the best deal. After all that research and choosing a lender, though, you might be asking what feels like an odd question: Why did my mortgage get sold?
While it may feel surprising, there is no need to stress. Mortgages are bought and sold all the time. Here’s why, and what you can do about it.
Many lenders specialize in originating a mortgage, but often, this initial lender can’t afford to wait for 15 or 30 years for you to pay it all back. By selling it, they no longer have to keep your debt on their books, and they can offer loans to other prospective homeowners.
While you are focused on your individual mortgage, your loan is part of a much larger web of other debts. It is a financial instrument, much like a bond that can be bought and sold between investors. In fact, that debt may be sold multiple times, and you may not even realize it. Behind the scenes, your loan could be packaged with other loans and sold as part of a mortgage-backed security (MBS). This trading of MBS makes up what’s known as the secondary mortgage market.
The workings of the secondary mortgage market may seem complex, but the goal is simple: to ensure that funds continue flowing through the housing and financing markets. MBS investors get income (from the mortgage payments of the MBS loan portfolio) and mortgage lenders get cash — with which they can extend loans to new borrowers.
When a mortgage is sold, a new company is typically buying the servicing rights. Those rights include collecting and processing the payments, along with all the other regular duties that come with mortgages. Those duties may include making disbursements from an escrow account to taxing authorities and property insurers. Some entities specialize in taking care of those servicing obligations.
Before your mortgage is sold, you’ll receive notice about the new servicer. Federal law dictates that you must receive a notice about the change at least 15 days before the switch. Then, within 30 days, the new mortgage owner must send you its name, address and contact number.
There is no need to stress: Mortgages are bought and sold all the time. — Greg McBride, CFA , chief financial analyst for Bankrate
If you receive a notice that your mortgage has been sold, the first step is simple: Don’t obsess over it. The terms of the loan — your interest rate, monthly payment and remaining balance — will not change.
But it’s still important to keep an eye on your information during this transition. While it is fairly common for your mortgage to be sold, mistakes and errors can and do happen. Make sure to:
To find out who currently owns your mortgage, you can follow these steps:
As a homeowner, you typically cannot prevent your mortgage from being sold or transferred. The lender has the legal right to sell the mortgage to another entity, lender or investor, under federal law and under the terms of your loan contract (read the fine print). In fact, it’s a pretty common practice in the mortgage industry. While you can’t stop the sale of your mortgage, you have rights under the Real Estate Settlement Procedures Act (RESPA) that require your current and new servicers to provide you with notices and information about the transfer.
To lower the chance of a sale, consider choosing a mortgage provider that retains its loans, also known as a portfolio lender.
Arrow Right Chief financial analyst, Personal Finance
Greg McBride, CFA, is the Chief Financial Analyst for Bankrate.com, leading a team responsible for researching financial products, providing analysis, and advice on personal finance to a vast consumer audience.
