Why Do They Keep Selling My Mortgage?

When a mortgage is sold, it often creates confusion and concern for homeowners. This practice is a routine part of the financial industry, driven by economic and operational factors. This article aims to clarify why mortgages are sold, what distinguishes mortgage ownership from servicing, what borrowers can expect during a transfer, and the protections available to them.

The Business of Mortgage Sales

Financial institutions frequently sell mortgages after originating them to enhance their operational capacity and manage financial exposures. This process enables lenders to free up capital, which they can then use to originate new loans, maintaining a continuous flow of funds in the housing market. By converting long-term assets into immediate cash, lenders gain liquidity, allowing them to support more homebuyers.

Selling mortgages also serves as a method of risk management for the original lender. Mortgages carry credit risk, meaning a borrower might default. By selling loans, lenders transfer this risk to other investors, diversifying their portfolios and stabilizing their financial positions. This transfer of risk allows institutions to specialize either in originating loans or in managing them after they are issued.

The secondary mortgage market plays a central role in this process. Entities like Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase a significant portion of mortgages from original lenders. They then package these loans into mortgage-backed securities, which are sold to investors, ensuring a steady supply of funds for new mortgages and contributing to lower interest rates and more accessible homeownership for consumers.

Understanding Mortgage Ownership and Servicing

A common source of confusion for borrowers is the distinction between who owns their mortgage and who services it. Mortgage ownership refers to the entity or investor that holds the legal right to the loan and receives principal and interest payments. This entity might be the original lender, but often, the loan is sold to an investor in the secondary market, such as Fannie Mae or Freddie Mac, or another financial institution.

Mortgage servicing, in contrast, involves the daily management of the loan. The mortgage servicer is the company responsible for collecting monthly payments, managing escrow accounts for property taxes and insurance, handling customer inquiries, and processing defaults. This servicer acts as the point of contact for the borrower, even if they do not own the loan. The original lender may retain the servicing rights, or these rights might be sold to a specialized servicing company.

The separation of ownership and servicing means that while the entity to whom you send your monthly payment might change, the fundamental terms of your loan, such as the interest rate, loan amount, or repayment schedule, remain the same. The mortgage note, a legal document detailing the loan terms, is held by the mortgage provider and can be sold multiple times, but the borrower’s obligations under that note do not change.

What to Expect When Your Mortgage is Sold

When your mortgage is sold, federal law mandates specific notification procedures to ensure a smooth transition for borrowers. The Real Estate Settlement Procedures Act (RESPA) requires both the transferor (old) and transferee (new) servicers to provide notice of the servicing transfer. The transferor servicer must send notice at least 15 days before the effective date of the transfer, and the transferee servicer no more than 15 days after. A single combined notice can also be sent 15 days before the transfer.

These notices must include essential information, such as the effective date of the transfer, the name and contact information of the new servicer, and the date the new servicer will begin accepting payments. The terms of your loan, including the interest rate, principal balance, and repayment schedule, do not change with a servicing transfer. The new servicer is legally bound to honor the original loan agreement.

Payment instructions, however, will change, and you should update any automatic payments or payment methods with the new servicer’s information. During the 60-day period following the effective date of the transfer, if you mistakenly send your payment to the old servicer, it cannot be treated as late, and no late fees can be imposed. Additionally, any existing escrow accounts for property taxes and insurance are transferred along with the servicing, ensuring continuous management of these payments.

Your Rights as a Borrower

Federal laws protect borrowers when their mortgage servicing is transferred or when they encounter issues with their servicer. The Real Estate Settlement Procedures Act (RESPA) provides specific protections, including notification requirements for servicing transfers. Under RESPA, borrowers have the right to dispute errors or request information from their mortgage servicer.

To formally dispute an error or request information, borrowers should send a written letter to the servicer, to a specific address for such inquiries. The servicer must acknowledge receipt of this letter within five business days. The servicer then has 30 business days to investigate and either correct the error or provide a written explanation of why no error occurred. For certain errors, such as an incorrect payoff balance, the response time can be as short as seven business days.

A protection for borrowers during a servicing transfer is the 60-day grace period. If a payment is sent to the old servicer on time during this period, the new servicer cannot charge a late fee or report the payment as late to credit bureaus. Borrowers should maintain thorough records of all payments and correspondence. If problems persist, or if the servicer fails to adhere to these regulations, resources like the Consumer Financial Protection Bureau (CFPB) can provide assistance.