Can I Stop My Mortgage From Being Sold?
Understand what happens when your mortgage is sold, your rights, and the practical steps to manage your loan successfully.
Borrowers generally cannot stop their mortgage from being transferred, as this is a common and legally permissible practice within the financial industry. Mortgage sales are a regular part of how the housing finance market operates, and homeowners have specific rights regarding these transfers.
How Mortgage Sales Work
A mortgage transaction involves two main components that can be sold: the loan itself, often called the “note,” and the “servicing rights.” The note represents the debt obligation, while servicing rights refer to the administrative tasks like collecting payments, managing escrow accounts, and handling customer inquiries. When a mortgage is sold, it typically means the servicing rights are transferred to a new company, or the loan itself is sold to an investor.
Lenders sell mortgages for various reasons, primarily to free up capital. By selling existing loans, lenders can generate cash, which they then use to originate new mortgages, ensuring a continuous flow of funds in the housing market. This process helps lenders manage their balance sheets, spread risk, and meet federal cash reserve requirements. Your loan terms remain the same regardless of who owns or services your mortgage.
Mortgages are frequently bought and sold in what is known as the secondary mortgage market. In this market, loans are often packaged together into mortgage-backed securities (MBS) and sold to investors. This securitization allows the initial lender to receive immediate funds, while investors gain the right to collect future mortgage payments. This financial instrument facilitates liquidity in the broader mortgage industry.
Your Rights When Your Mortgage Is Sold
Both your old and new servicers must provide you with notices about the transfer. The original servicer, known as the transferor, must send a notice at least 15 days before the effective date of the transfer. The new servicer, or transferee, must also provide a notice no more than 15 days after the transfer date. Sometimes, both servicers may send a combined notice at least 15 days before the transfer.
This includes the name, address, and a toll-free or collect call telephone number for both the old and new servicers. The notice will also specify the effective date of the transfer and the date when the old servicer will stop accepting payments, along with when the new servicer will begin.
A significant protection for borrowers is a 60-day grace period following the servicing transfer. During this period, if you mistakenly send your mortgage payment to the old servicer, the new servicer cannot treat your payment as late. This means no late fees can be assessed, and your payment cannot be reported as delinquent to credit bureaus. This grace period helps prevent penalties during the transition, ensuring your credit score is not negatively impacted by a change in servicer.
Steps After a Mortgage Sale
Begin by carefully reviewing all notices received from both your former and new servicers. Confirm the new servicer’s name, address, contact information, and the effective date of the transfer.
The next crucial step involves updating your payment methods to direct payments to the new servicer. If you use automatic payments through your bank or the old servicer’s portal, you will need to set up new arrangements with the new servicer. This might involve updating direct debit instructions or changing the payee for online bill pay. Ensure you verify the new payment address if you mail checks.
Keep copies of all transfer notices, payment confirmations, and any correspondence with both the old and new servicers. It is advisable to retain mortgage-related documents, such as the original promissory note and deed, for the life of the loan. After a mortgage is paid off, retaining key documents for at least seven years can be beneficial for tax purposes or potential future inquiries.
Regularly monitor statements from the new servicer for accuracy, particularly for the first few months after the transfer. Verify that your loan balance, interest rate, and escrow details are correctly reflected. If you identify any discrepancies or errors, contact the new servicer promptly to initiate a dispute. Federal regulations require servicers to respond to complaints in a timely and professional manner.