If you’ve had your current mortgage for any length of time, you might have experienced what many homeowners do–a mortgage transfer. Your loan has been sold to another company and you now need to send your mortgage payments to them. This is often the first time that homeowners realize that the company who approved and funded the mortgage loan at the settlement table isn’t the one who accepts the mortgage payments each month. Questions about mortgage transfers are some of the most frequently asked questions for new mortgage customers and experienced buyers alike.
Mortgage lenders make money through lender fees when the loan closes and through monthly interest with each payment. Among all the closing papers you signed, initialed, and reviewed at your closing, one of those forms detailed the likelihood that your mortgage will be sold to someone else or that the party collecting the monthly payments can change.
How Does a Mortgage Transfer Work?
Step One: Hello and Goodbye
Collecting the monthly payment is technically referred to in the mortgage industry as “servicing.” A mortgage servicer takes over the payment collection each month on behalf of the current owner of the loan and makes a small fee as each payment is made. For example, you go to your closing and sign the closing papers your lender has drawn. Yet after a few months you get two letters in the mail. The first letter is referred to as the “goodbye” letter, letting you know your mortgage has been transferred to another company, and the second the “hello” letter from the new company.
The majority of conventional loans in today’s marketplace are ultimately sold to mortgage industry giants Fannie Mae and Freddie Mac. Yet borrowers don’t make mortgage payments to them either. Instead, Fannie and Freddie employ mortgage servicers to collect the monthly payments and forward the principal and interest due.
Step Two: The Mortgage Transfer Hand-off
Unfortunately when loans and servicing rights are sold, there can be some confusion. Someone may have mailed off a payment to the mortgage company only to find a letter in their mailbox the next day informing them of the mortgage transfer. What about the monthly payment just made? Does the borrower have to make still another payment to keep current on the mortgage? In this instance, the previous lender will forward the payment to the new servicer. In addition, no late payments are recorded when servicing rights are sold, allowing time for the new servicer to set up new account information. But sometimes things still don’t go as smoothly as they should when loans and servicing rights are sold.
Step Three: Accountability
Say that you sent off your mortgage payment, yet it’s been two months and your new servicer hasn’t logged your last payment. Now the next payment is due. You’ve tried working with the servicer to locate the payment, but you’re getting no help. Your first step in such an instance is to speak with the new servicer supervisor. It is also a good idea to contact the original mortgage lender. Lenders sell these rights to other servicers and, if they get complaints about a particular company, they can halt any new sales to the offending servicer.
You can also file a complaint with the regulators who monitor servicing, such as the Department of Housing and Urban Development, the Office of the Comptroller of Currency, Fannie and Freddie, and the Consumer Financial Protection Bureau. However most servicing issues are fixed in a short time and do not require these measures; it simply takes time for everyone to get on the same page.
Step Four: Continuing Payments
When a mortgage transfer occurs, nothing really changes except where your loan resides and where you send the monthly payments. Nothing in your original note can be changed, so don’t be concerned about a new mortgage rate or additional fees. Lenders sell loans so they can continue to be lenders. Without having the ability to sell loans and servicing rights, the mortgage market would grind to a halt.
Mortgages and the home buying process doesn’t have to be complicated or intimidating. Work with an experienced mortgage lender and you will understand every part of the process.