Clark Galvan
It is common for loan holders to sell loans to another financial institution, but does it matter if your loan is sold? The short answer is no. The sale of your loan won't affect the terms of your mortgage, so your payments won't go up. The only thing that will change is the way you pay your mortgage and who you speak with if you have questions.
| Characteristics | Values |
|---|---|
| How common is it for a loan to be sold? | Very common |
| How often can it be sold? | Multiple times |
| Who buys the loan? | Another company, lender, or investor |
| What rights are sold? | Servicing rights |
| What are servicing rights? | Collecting and processing payments, responding to borrower inquiries, managing escrow accounts, and processing foreclosures |
| Does the loan owner change? | Yes |
| Does the servicer change? | Not necessarily |
| Does the loan rate, terms, or amount owed change? | No |
| Does the borrower need to be notified? | Yes, by both the old and new lender/servicer |
| How far in advance does the borrower need to be notified? | No less than 15 days before the loan is transferred |
| What information does the borrower need to be notified of? | The name, address, and contact information of the new owner/servicer |
| What happens if the borrower accidentally sends payment to the previous owner? | There is a 60-day grace period during which the new owner cannot penalize the borrower or apply a late fee |
What You'll Learn
Lenders sell loans to free up capital and cash in on commissions
It is common for loan holders to sell loans to another financial institution. This is called the secondary market and it frees up money for lenders to give mortgages to new borrowers. Banks need to keep pools of money on hand to meet their federally mandated cash reserve requirements and to have funds available for account holders and customers.
Selling mortgages frees up their capital, ensuring they can handle withdrawals and enabling them to make loans, including other mortgages to applicants. It also gets debt and default risk off their books. Selling mortgages convert longer-term, less liquid assets on the balance sheet to cash, the most liquid asset on the balance sheet. In addition, banks collect immediate commissions on the loans they sell. By contrast, the mortgage interest the bank earns over the life of your loan takes decades to be collected. Selling loans is more profitable than holding onto them.
Mortgages are bought and sold all the time. 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. The secondary mortgage market has a lot of moving parts. Lenders are constantly selling loans to other lenders, jockeying for position and profit in the mortgage marketplace. All of this movement can create confusion, especially for new homebuyers who worked with a mortgage broker to secure a mortgage loan.
Brokers are also uniquely positioned to capitalize on referral commissions due to their expertise in matching clients with the right lending solutions. These commissions are typically calculated as a percentage of the loan amount, providing an incentive to refer larger loans.
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You'll be notified of the change in ownership within 15-30 days
When a loan is sold, the borrower is typically notified within 15 to 30 days. This period allows for the processing of the necessary paperwork and the
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The terms of your loan will remain the same
When you take out a loan, you might be concerned about the possibility of your loan being sold to another lender. While it's understandable to worry about the implications of this, the good news is that the terms of your loan will remain unchanged if it is sold. Here's what you need to know about loan sales and how it affects you.
The terms of your loan are outlined in the loan agreement that you sign at the beginning. This agreement is a legally binding contract that specifies the rights and obligations of both the borrower and the lender. When your loan is sold, the new lender steps into the shoes of the original lender and becomes a party to the existing loan agreement. They cannot unilaterally change the terms, such as the interest rate, repayment schedule, or loan duration, without your consent. So, if your loan is sold, you can rest assured that the financial commitments and conditions will stay the same.
However, it's important to understand that while the substantive terms of your loan won't change, there may be some administrative or procedural changes. For example, you might be required to send your loan payments to a different address or interact with a new customer service team. These types of changes are typically communicated to you through a notice of transfer or a welcome letter from the new lender. It's important to stay vigilant for such notifications to ensure that you're
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You may need to fill out some paperwork
When a loan is sold, it is usually done so within the first few years of the loan being taken out. The sale of a loan is often a surprise to first-time buyers or homeowners who have not had a loan sold before. However, it is a common occurrence and should not be a cause for concern.
When a loan is sold, you will receive a notification before and after the sale. This notification must be sent within 30 days of the sale. Upon receiving the notification, you should take a look at the document sent to you. It will list the dates of the transfer and where you should send your next mortgage payment. Sometimes, your mortgage payment may be due prior to or during the transfer, in which case you can call your original lender to find out where you should send your next payment. You should continue to pay the first lender until you get a letter from both lenders advising that your loan has been sold or assigned.
The sale of your loan may result in some differences in the way you make your payments. For instance, your new lender may allow online payments where your old one did not. They may also offer different payment options or more flexible plans. However, your interest rate, term, and fees will not change during the sale, so your monthly mortgage payment will remain the same.
The company that manages your loan is known as the loan servicer. This is the company that you send your mortgage payments to and which sends you your monthly mortgage bills. Any communication about your loan will happen between you and the loan servicer. They also manage your escrow account to pay your taxes and insurance.
In the case of a loan sale, it is important to be aware of potential mortgage scams. As a result of these scams, Congress regulated the assignment, transfer, or sale of mortgage loans in 1990. As part of the National Affordable Housing Act, certain provisions were added to the Real Estate Settlement Procedures Act (RESPA). These laws protect individual borrowers whose loans have been sold, transferred, or assigned to a new lender. If a lender violates the law, an individual consumer can recover any actual damages, and any additional damages that a court might allow.
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You'll need to send your payments to a different company
When your loan is sold, you'll be required to send your payments to a different company. This is because the new loan owner now manages the loan and is in charge of collecting payments. It's important to note that this doesn't change the terms or conditions of your loan; only the entity that you make payments to changes.
Before your loan is sold, you should receive a notice from your current lender informing you of the change. This notice will typically include the name of the new lender, their contact information, and where to send future payments. It's important to keep an eye out for this notice, as it will provide you with the necessary details to ensure your payments are directed to the right place.
Once you have this information, set up the payment with the new company. It is important to do this promptly to avoid any late payment fees or penalties. You can usually set up automatic payments, so you don't have to worry about manually sending payments each month. However, be sure to double-check that the payment has gone through the first month, just in case.
It is also worth noting that if you have any issues with the loan, such as disputes over payments or fees, these will now need to be taken up with the new company. Make sure you keep a record of all your communications and payments, so you can easily reference them if needed. Additionally, keep yourself updated on the new company's policies and procedures, as they may differ slightly from your previous lender's.
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Frequently asked questions
If your loan is sold, the new owner is required by law to notify you within 15-30 days of the effective date of transfer. The notice will include the date of transfer, name, address, and telephone number of the new owner. The terms of the loan will not change, but you will need to send your payments to a different company.
Lenders sell loans to free up funds to lend to other potential buyers. Lenders often bundle loans together and sell them to investors, who then sell them as bonds. This practice helps keep rates competitive and boosts the economy.
You should receive a notice from your old and new lender. Make sure to read the notice carefully and update your payment process. You may need to redirect your ACH withdrawal or mail a check to a new address. It's also a good idea to set up automatic payments with your new lender.
