Why Did My Lender Sell My Mortgage?

IN THIS ARTICLE:

• Definition & Purpose of a Mortgage Sale
• Mortgage Sale Process & Your Rights
• Protection During Transfer

When you apply for a home loan, one federally-required disclosure you'll receive says your lender has a right to sell your mortgage. Let's review what this means, and how it impacts your loan terms.

Definition & Purpose of a Mortgage Sale

After a lender makes you a mortgage loan, that loan must be serviced as long as you have it. Loan servicing includes collecting and processing your payments, reporting your loan balance to you, managing your escrow account to pay your property taxes and insurance, and responding to your ongoing inquiries.

After a lender makes a loan to you, it's common business practice for them to sell that mortgage to a new entity who takes over the servicing. Mortgage lenders do this to make money and to raise capital to make new loans.

Federal law -- under the Real Estate Settlement Procedures Act (RESPA) -- allows lenders to sell loans as long as they disclose it to you within three days of your application.

The disclosure you'll get is often called the Servicing Disclosure Statement (or something similar). This document will clearly explain whether the lender will:

• Keep the loan, so all servicing (including your monthly mortgage statements) always comes from the original lender who made the loan.
• Sell the loan before the first payment is due, so all servicing (including your monthly mortgage statements) will come from a new entity.
• Sell the loan at some undermined point in the future, so the original lender will initially do all servicing (including your monthly mortgage statements), but might later notify you that they're selling your loan to a new servicer.

No matter which of these three scenarios the lender confirms on their servicing disclosure, the terms of your loan cannot change. The terms of your loan are defined by a Note, which is one of the most important documents you'll sign.

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Mortgage Sale Process & Your Rights

Whether the lender who made your loan to you sells your loan immediately or later in the life of your loan, here's what federal law -- under the Truth In Lending Act (TILA) -- requires of lenders to protect you:

• The existing servicer of your loan must notify you in writing that they're selling your loan at least 15 days before the effective transfer date of the loan. They must tell you the date they'll stop taking payments.
• The new servicer of your loan must notify you in writing that they're taking over your loan not more than 15 days after the effective transfer date. They must tell you their name, address, and customer service phone number, and must also tell you the date they'll accept the first payment.
• If the two notices are combined, then the combined notice must be delivered to you at least 15 days before the effective transfer date.

Protection During Transfer

RESPA also protects you during the loan servicing transfer process by saying that the new lender cannot charge you late fees for the first 60 days after the loan transfers from the old lender.

This protects you from additional fees if you accidentally send your payment to the old lender after the old lender's cutoff date. But you'll still need to work with both lenders to get any accidental payments re-routed properly.

For more on this topic, read Your Mortgage Servicing Rights: What You Need To Know.