Can a Mortgage Company Sell Your Mortgage?

Mortgage companies frequently sell mortgages, a standard practice in the financial industry. While homeowners may be surprised to receive notice, this transaction is both legal and common. A mortgage sale does not indicate issues with the borrower’s credit or the original lender’s financial health. Instead, it is a routine aspect of the mortgage market, facilitating fund flow and portfolio management.

Understanding Mortgage Sales

Mortgage lenders frequently sell loans they originate to other financial institutions or investors. This practice allows the original lender to free up capital, which they can then use to offer new loans to other borrowers. By selling mortgages, lenders convert long-term assets into immediate cash, supporting their liquidity and enabling them to continue their lending operations. This process is a fundamental component of the secondary mortgage market, a vast marketplace where home loans and their servicing rights are bought and sold.

In this market, mortgages are often bundled and sold as mortgage-backed securities (MBS) to investors like pension funds or insurance companies. This securitization allows investors to gain income from homeowner payments. Fannie Mae and Freddie Mac, government-sponsored enterprises, play a significant role by purchasing a large percentage of mortgages, providing stability and ensuring funds for new loans.

What Changes for Your Mortgage

When a mortgage is sold, distinguish between the “owner” and the “servicer.” The owner holds the actual loan debt. The servicer is the company responsible for day-to-day loan management, including collecting payments, handling escrow, and providing customer service. While ownership may change multiple times, servicing rights may or may not transfer with it.

The fundamental terms and conditions of your mortgage agreement remain unchanged when it is sold. This means your interest rate, the principal balance, the repayment schedule, and the original loan maturity date are unaffected by the sale. Any potential changes to your monthly payment, such as those due to an adjustable-rate mortgage or adjustments in escrow for property taxes or insurance, would occur regardless of a sale. The primary change you will experience is typically where you send your monthly payments, as the new servicer will take over this responsibility.

Escrow accounts, which hold funds for property taxes and homeowners insurance, are also transferred to the new servicer. The new servicer is responsible for managing these funds and ensuring timely payments for these obligations. It is advisable to review the first few statements from the new servicer carefully to confirm that all details, including the loan balance and escrow information, are accurate.

Your Rights and Required Notifications

Federal law protects borrowers when their mortgage is sold or transferred. Both your old and new servicers must provide written notice of the servicing transfer. This notification, often called a “Goodbye Letter” from the old servicer and a “Welcome Letter” from the new one, is mandated by the Real Estate Settlement Procedures Act (RESPA).

Your old servicer must send notice at least 15 days before the servicing transfer’s effective date. The new servicer must provide their notice no more than 15 days after the effective date. Sometimes, servicers combine these notices into a single document, which must still be sent at least 15 days before the transfer takes effect. These notices must include the effective date, the new servicer’s name, address, and toll-free telephone number, and the date the new servicer will begin accepting payments.

Additionally, if the ownership of your mortgage changes, the new loan owner is required by the Truth in Lending Act to notify you of this transfer no later than 30 days after the sale. To prevent penalties during the transition, federal law includes a 60-day grace period following the effective date of the servicing transfer. During this period, if you mistakenly send a payment to your old servicer on time, the new servicer cannot charge you late fees or report the payment as delinquent to credit bureaus.

Steps to Take After Your Mortgage is Sold

After receiving notification that your mortgage has been sold, take several steps to ensure a smooth transition. First, read all notices from both your old and new servicers to verify information. Confirm the new servicer’s name, address, and contact details, and note the transfer’s effective date. If you doubt the transfer’s legitimacy, contact your previous servicer directly using a known phone number, not one from the new notice, to confirm the sale.

Next, update your payment methods to reflect the new servicer’s information. If you use automatic payments through your bank or the servicer’s platform, you will likely need to set up new arrangements with the new company, as automatic payment information usually does not transfer. Be mindful of the effective date for payments to the new servicer, allowing extra time if mailing checks. Keep thorough records of all communications, including the transfer notices, and retain copies of your mortgage statements, especially during the months surrounding the transfer.

Finally, review the first few mortgage statements from your new servicer to ensure your loan balance, interest rate, and escrow details are accurate. If you identify discrepancies or have questions, promptly contact your new servicer to resolve them. Maintaining clear records and being attentive to these details helps prevent potential issues like payment errors or disruptions in escrow management.