Selling Mortgages: How It Affects You And What To Do Next

You might be wondering what mortgage investors have to do with you when you buy a home. The truth is, mortgage investors keep the real estate market running in ways you probably didn’t even realize – and in some cases, they can impact the servicing of your current mortgage.

Most mortgage lenders opt to sell your home loan at some point during your mortgage term, so you’ll want to understand how this process works. We’ll explain more about what selling mortgages means for you as the mortgagor (and what you should do when it happens).

What Is A Mortgage Investor?

After you buy a home, there are two main parties you’ll need to be aware of – your mortgage lender and your servicer.

Your mortgage lender is the bank or other financial institution that issued your mortgage. Your servicer is the entity that handles your home loan payments after closing. Sometimes these entities are the same, but other times, your lender will direct you to a third-party company that handles loan servicing for them.

A mortgage investor is the party that purchases mortgages from lenders. In most cases, these investors are actually government entities or government-sponsored enterprises that purchase your home loan so your lender is able to continue selling new home loans.

Here’s a breakdown of who the investor on your mortgage might be.

Government-Sponsored Entities

Some mortgage investors, like Fannie Mae and Freddie Mac, are government-sponsored entities.

Fannie Mae and Freddie Mac have their own selection of conventional home loan products. Conventional home loans are mortgages that are backed by a private financial institution or investor instead of the government. The interest rates are similar to and sometimes lower than loans backed by government entities.

When either of these two entities purchases mortgages, they sell them to private investors as mortgage-backed securities. As you continue to pay on your home loan, Fannie Mae and Freddie Mac use this money to pay back the investors who purchased their securities.

When private mortgage investors invest with Fannie Mae or Freddie Mac, they are not guaranteed a profit. Mortgage-backed securities often consist of as many as 1,000 loans or more. Still, if enough people don’t make their mortgage payments, the return on investment can be substantially lowered.

Government Agencies

There are also government agencies that purchase mortgages that meet their investor guidelines. These agencies include the Federal Housing Administration (FHA), the United States Department of Agriculture (USDA) and the United States Department of Veterans Affairs (VA).

These agencies can all purchase home loans from lenders that meet their individual agency guidelines and resell them on the secondary market to private investors. This allows these agencies to receive instant funds from investors on your loan, which in turn lets them continue to purchase more mortgages.

Why Are Lenders Interested In Selling Mortgages?

Most people don’t realize that the secondary home loan market plays a huge role in keeping the mortgage industry thriving. This secondary market purchases mortgages and makes money as you pay off your home.

Home loans are sold regularly for two reasons. The main reason is to allow lenders to afford to lend money to new home buyers. The process is cyclical and continues from there.

When lenders sell loans, they’re able to take this debt from their balance sheet and free up their credit for new customers.

The second reason lenders sell mortgages is to provide the lender with instant funds. Your lender might earn hundreds of thousands of dollars from your home loan in interest, but they’ll need to wait 15 or 30 years – or the length of your mortgage – to receive their funds. Sometimes lenders prefer to make a faster profit by selling off your mortgage to an investor.

You can find out if your mortgage can be sold by consulting your loan paperwork. Your lending agreement or mortgage contract will detail in fine print whether your home loan has the option of being sold to another investor.

Will My Loan Change After Being Sold?

The details of your loan – your mortgage rate, terms and other agreements – will not change if your home loan is sold by your current lender. Those details are locked into your contract and will remain the same as they did on the day you closed on your home.

Your mortgage servicer might change, but this will typically have a minimal effect on you. The main difference will just be that you’ll contact a different company for customer service, and you may want to take steps after the switch to ensure your payments have transferred smoothly.

What To Do If Your Loan Servicing Transfers

Finding out you have a new loan servicer after your mortgage has been sold is completely normal – many lenders sell mortgages.

1. Read The Notice And Update Your Details

The transfer notice will provide the information you need to contact your new servicer. You may need to set up a new online account, direct deposit schedule and account profile on a new online servicing system.

Be sure to act on this quickly so there are no delays that could cause your home loan payments to go through past the due date.

As a general rule, you should always keep receipts and statements for anything related to your mortgage. Check effective dates and terms and open every piece of mail that comes from your servicer, old or new. This applies to new mortgage loans as well as those that you have chosen to refinance.

2. Communicate With Your Servicer

If there are delays that cause your mortgage payment to be missed, don’t panic. Reach out to both providers to explain the issue.

For instance, if you were notified on the 29th of a change in service and your next mortgage payment was already scheduled to go through on the 30th with the old provider, you might not be able to set up a new payment in just 24 hours.

3. Update Payment Information

Be sure to talk to your original lender to ensure your last payment went through and that you have clear expectations of when you should stop paying them. Then reach out to the new lender with this information, particularly if you missed a payment because you scheduled it with the old provider.

If you accidentally make a payment to your old servicer within 60 days of the transfer of servicing, they aren’t legally allowed to consider it a late payment.

Again, communication with both providers is key during this process.

The Bottom Line: Selling Mortgages Is Common, So Don’t Panic

Lenders sell mortgages on the secondary market all the time. If your lender sells your home loan, there’s no need to worry. Often, your loan servicing remains the same and you’ll continue making payments just as you did before.

Interested in a new mortgage? Get answers to your questions and begin the approval process today with Rocket Mortgage^®.