Why your mortgage gets sold, and what you can do about it

Feverpitched/ Getty Images; Illustration by Austin Courregé/Bankrate

Before you applied for a mortgage, you watched interest rates, compared multiple lending options and scrutinized the terms to make sure you landed the best deal. After all that research and choosing a lender, though, you might be asking what feels like an odd question: Why did my mortgage get sold?

While it may feel surprising, there is no need to stress. Mortgages are bought and sold all the time. Here’s why, and what you can do about it.

Why do mortgages get sold?

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. By selling it, they no longer have to keep your debt on their books, and they can offer loans to other prospective homeowners.

While you are focused on your individual mortgage, your loan is part of a much larger web of other debts. It is a financial instrument, much like a bond that can be bought and sold between investors. In fact, that debt may be sold multiple times, and you may not even realize it. Behind the scenes, your loan could be packaged with other loans and sold as part of a mortgage-backed security (MBS). This trading of MBS makes up what’s known as the secondary mortgage market.

The workings of the secondary mortgage market may seem complex, but the goal is simple: to ensure that funds continue flowing through the housing and financing markets. MBS investors get income (from the mortgage payments of the MBS loan portfolio) and mortgage lenders get cash — with which they can extend loans to new borrowers.

What happens when your mortgage is sold

When a mortgage is sold, a new company is typically buying the servicing rights. Those rights include collecting and processing the payments, along with all the other regular duties that come with mortgages. Those duties may include making disbursements from an escrow account to taxing authorities and property insurers. Some entities specialize in taking care of those servicing obligations.

Before your mortgage is sold, you’ll receive notice about the new servicer. Federal law dictates that you must receive a notice about the change at least 15 days before the switch. Then, within 30 days, the new mortgage owner must send you its name, address and contact number.

How to protect yourself when your mortgage is sold

If you receive a notice that your mortgage has been sold, the first step is simple: Don’t obsess over it. The terms of the loan — your interest rate, monthly payment and remaining balance — will not change.

But it’s still important to keep an eye on your information during this transition. While it is fairly common for your mortgage to be sold, mistakes and errors can and do happen. Make sure to:

• Read the notice carefully: Zero in on any mention of the mortgage servicer changing. Some lenders retain servicing rights even after selling a mortgage.
• If the servicer is changing: Check all the data listed with the old servicer (name, address, email, other contact info) to make sure it’s up to date.
• Update your payment process: You may need to redirect your ACH withdrawal — if you do auto-payments — to a different entity or mail a check to a new address.
• Double-check the effective dates: Know when the old payments should stop and the new ones should start. If you recently sent a payment to the previous mortgage owner, no worries: There is a 60-day grace period after servicing rights have been sold.
• Keep receipts: Keep copies of statements from the months surrounding the sale and transfer to a new owner. By holding on to documentation, you can prove that you submitted payments on time in the event of any confusion.
• Look for confirmation: Watch carefully for confirmation that the first new payment went through.
• Don’t be afraid to reach out: If anything is unclear, contact the new servicer, whose info should be provided on the notice.

FAQ

• How do I find out who owns my mortgage?

  To find out who currently owns your mortgage, you can follow these steps:

  1. Check your mortgage statement: Start by checking your monthly mortgage statement. The statement usually includes information about your loan servicer, the company that collects your payments. It can provide you with details about the current owner of your mortgage.
  2. Review closing documents: Look through your closing documents, including the promissory note and deed of trust. These documents may include information about the original lender and any subsequent transfers of ownership.
  3. Contact your loan servicer: Reach out to your loan servicer directly by phone, mail or through its website. It is legally obligated to tell you who owns your mortgage or if it has been sold to another entity.
  4. Use an online mortgage lookup tool: The government-sponsored enterprises Fannie Mae and Freddie Mac, which buy most mortgages, both offer online tools where you can search for your mortgage by entering your loan number or property address. These tools can provide information about your loan servicer and the current owner of your mortgage.
  5. Check with MERS: If your mortgage has been securitized, you can check the Mortgage Electronic Registration Systems (MERS) website. MERS tracks loan servicing and ownership changes for many mortgages in the United States.

• Can I stop my mortgage from being sold?

  As a homeowner, you typically cannot prevent your mortgage from being sold or transferred. The lender has the legal right to sell the mortgage to another entity, lender or investor, under federal law and under the terms of your loan contract (read the fine print). In fact, it’s a pretty common practice in the mortgage industry. While you can’t stop the sale of your mortgage, you have rights under the Real Estate Settlement Procedures Act (RESPA) that require your current and new servicers to provide you with notices and information about the transfer.

  To lower the chance of a sale, consider choosing a mortgage provider that retains its loans, also known as a portfolio lender.