Why Does My Mortgage Loan Get Sold or the Payment Servicer Change?
By Andy Harris, President of Vantage Mortgage Brokers
This question comes up often for most consumers in the United States who take out mortgages. Most need a little clarity on what it means and does not mean when their mortgage loan servicer changes (who sends the statements and collects the payment).
First, it’s essential to understand that agencies rather than lenders back most traditional mortgage loans. These agencies buy, insure, and guarantee these loans, such as conventional, conforming loans backed by Fannie Mae and Freddie Mac or government loans (FHA, VA, USDA) backed by Ginnie Mae. So, as a large percentage, the company you’re paying to carries mortgage servicing rights (MSR) and nothing more. Read more about that HERE
Second, once this is clear, most consumers opt to shop their mortgage loans for better terms rather than solely relying on who is servicing them. Lenders with a history of not selling mortgage servicing rights still have the right to (in most all cases) at any time. So you want to be careful if any lender or loan originator sells this as a value over the loan terms, as this can change. Mortgage servicers are heavily regulated, so the rare cases of bad experiences (shared more publicly than good experiences, like most things) must be taken with a grain of salt.
While we work with several wholesale lenders that generally service the client for life, the terms are essential when considering all investors.
It’s not uncommon for mortgages to be sold or for loan servicers to change, and this can happen for several reasons:
1. Liquidity for Lenders
- Why? Lenders often sell mortgages to free up funds to make new loans. This allows them to maintain liquidity and continue their lending operations.
- How? After closing your loan, the lender might sell it to an investor or a private entity. Remember the other sale noted above if relating to Fannie Mae, Freddie Mac, etc. behind the scenes.
2. Investment and Secondary Market
- Mortgages are bundled into securities and sold to investors on the secondary market. This allows investors to earn returns from your loan payments.
3. Loan Servicer Changes
- Why? Servicing rights (responsible for collecting your payments and managing your loan) might be sold separately. Some lenders prefer to focus on originating loans rather than managing them.
- What Changes? While the entity collecting your payments may change, the loan terms (interest rate, monthly payment, etc.) remain the same.
4. Portfolio Management
- Lenders might sell loans to rebalance their portfolio or manage risk. For example, they might sell loans that do not align with their desired risk profile or financial goals.
5. Regulatory or Strategic Decisions
- A lender or servicer may exit the mortgage servicing business altogether or decide to consolidate operations, leading to a transfer of servicing rights.
6. Profitability
- Servicing loans is a business, and companies may sell servicing rights if it’s more profitable for them to do so.
What to Expect When This Happens
- You’ll receive a notice from both your current and new servicer detailing the change.
- Your loan terms, interest rate, and balance remain unchanged. Only the payment destination changes.
- Federal law requires a grace period (usually 60 days) during which you won’t be penalized for making payments to the previous servicer.
If you have any concerns or questions, please always verify communications with both the old and new servicers to avoid scams.
