Should I be concerned about my bank selling my mortgage?

Many borrowers prefer getting their mortgage from the corner bank because they know exactly who is giving them the loan and who will be servicing their mortgage.  However, what most borrowers don’t realize is that there is a good chance their mortgage will be sold at some point down the road anyway – even by the corner bank.

Why do lenders sell mortgages?
Lenders sell mortgages for two main reasons:
•    Make money off of the loan. Lenders make a commission off the mortgages they sell.  They can make money from a mortgage in a few different ways: by charging fees when the loan is originated; by earning interest off monthly payments; or, by selling the loan for a commission after it is created.
•    Free up their capital. Lenders receive cash when the mortgage is sold, so they use this liquidity to give loans to other people and once again, they make money via the methods stated above.  If the bank can make more money creating loans than by holding and servicing loans, they may sell existing mortgages so they can generate more new loans.

Is it a bad thing that my mortgage is sold?
Typically, no. Although it sometimes feels like you have been betrayed when you find out your mortgage has been sold to a different lender or investor, it is usually not a bad thing.  Remember, you have already borrowed the money and signed a set of terms for the loan.  As long as you are not delinquent or behind on your payments, the terms for the loan do not change.  The biggest difference is that your monthly payment is now sent to a new address.

However, there may be other small privileges that are lost when your loan is sold.  These include things such as free checks your bank gave you for having your loan with their bank.

What happens if my lender goes bankrupt?
As much as you would like to believe your mortgage will be forgiven if you lender fails, the truth is that the mortgage will most likely be sold to another lender or investor.  In this case you typically keep the same terms on your loan and just pay a new servicer.

Takeaway
The size and stability of the bank from which you borrow does not need to weigh heavy in your decision making process.   You are borrowing money, which is a commodity, and eventually you will have to pay off the loan.   The terms are set when you sign your contract so you should not worry about a sale in the secondary mortgage market.

Read your contract
Reminder: It is important that you read the terms when you sign for your mortgage.  There is a mandatory disclosure telling you whether your loan will be sold and the percentage of loans the lender issues that will be sold.