Mortgage Selling: What Is It All About?

If you have an existing mortgage, it could only mean that you borrowed money to finance your new home or to acquire a new property.  In the traditional setup, you are expected to pay your monthly dues to your mortgage provider until such time that you are able to repay everything.  However, what does it mean when your mortgage provider tells you that your mortgage has been sold?  Specifically, what does it mean to you and how will such a move affect you?

What is a Mortgage?

A mortgage is an evidence of a debt incurred.  A borrower pledges his property in exchange for money borrowed.  Full ownership of the said property is then awarded to the borrower upon full payment of the loan plus all other agreed interest charges.

A mortgage has two main components:  the loan and loan servicing.  These two can be sold either as a whole or separately, with the latter component usually staying with the original lender.

Sale of a Mortgage

Mortgage companies have the right to sell and transfer any of their mortgages on hand to another entity, whether local or international.  This transaction is called secondary mortgage selling.  The original mortgage company benefits from this sale by recovering their capital (the monies lent to the borrower), eliminating the risk of non-payment on the borrower’s part and profiting a little bit from past interest payments and any other amount tagged on to the original capital upon the sale.

A loan-servicing sale is more complicated than the ‘loan sale’ described above, however.  For one, it involves more steps and documentation.  First, your original mortgage servicer should publicly disclose his intention to immediately sell the servicing of the loan, the percentage of the servicing that he intends to sell and whether the option to sell is available to him throughout the life of the mortgage.

What Does This Mean to You?

When your mortgage is sold to the secondary mortgage market, nothing much should change.  Basically, it should only mean a change in the payment address.  None of the original terms, conditions and rates will change.  You should expect to receive a notification from both mortgage companies.  The original lender should inform you in writing about the sale or transfer as well as the details of such sale or transfer.  The new owner of the mortgage, on the other hand, should also inform you that they are now officially handling your account; you will also be informed of whatever changes have been made to payment arrangements, including payment address changes.

Due to the change in address and a possible delay in receiving the letter informing you of the transfer, there is a 60-day grace period where the new owner of the mortgage cannot charge you for paying late or for non-payment.  The automatic assumption is that you may have mistakenly sent the payment to your original service provider.

Benefits of a Secondary Mortgage Transaction

The sale of mortgages from one company to another benefits you and all other borrowers.  First, the original holder of the mortgage gains back his capital and some more, therefore becoming capable once more of lending money to another person in the market for a new home.  Second, this continuous flow of loans keeps mortgage bankers liquid and helps maintain mortgage rates at a minimum.

Protection Against Fraud

The RESPA or the Real Estate Settlement Procedures Act is a law that oversees the rules and procedures for the servicing of a loan.  A servicing company is defined as the entity to which a borrower makes payments.

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