How Does Selling Mortgages Work?

It might come as a surprise when your mortgage lender sends a letter informing you that it has sold your home loan. How does your lender benefit from selling mortgages after you purchase real estate?

Selling mortgages is pretty common. If it happens to you, it’ll be helpful to already know why banks sell mortgages, whether mortgages change after being sold and what you need to do if your loan service transfers.

Who Sells Mortgage Loans?

Banks and lenders sell mortgages. When your bank or lender sells your mortgage loan after the mortgage process, they’ll most likely sell it to one of these three government-owned or government-sponsored enterprises (GSEs): Fannie Mae, Freddie Mac and Ginnie Mae. A smaller investor not affiliated with the government may also buy your mortgage from your lender.

Why Do Banks Sell Mortgages?

Why do mortgages get sold? Banks and lenders usually sell mortgages to ensure they have the funds to provide more loans to other new home buyers. Another reason they sell loans is to make a quicker profit by selling the mortgage to an investor.

Mortgage lenders try to keep money from being tied up in homeowners' homes for the full loan term. If a lender does keep money tied up in the original mortgages it issues, it cannot keep money flowing toward more mortgages. In short, selling loans to GSEs keeps liquidity flowing throughout the market so lenders can help borrowers buy their homes.

It's important to remember that loan servicers often switch. It's not your "fault" if your servicer changes and it also does not reflect your worth as a borrower.

What Is A Mortgage Investor?

As mentioned, mortgage investors include GSEs and government agencies such as Freddie Mac, Fannie Mae and Ginnie Mae. But what exactly do they do with your home loan?

They purchase it and a bunch of other mortgage loans and repackage them into portfolios or mortgage-backed securities to sell on the secondary mortgage market. A mortgage-backed security is an investment similar to a bond that makes up a parcel of mortgage loans bought from lenders.

Do Mortgage Loans Change After They’re Sold?

If the home loan is sold by the borrower’s current mortgage lender, the loan details will not change. In other words, if you have a 30-year mortgage at a 7% fixed interest rate, you'll keep the same mortgage payments and terms for your home loan unless you refinance, changing the terms of your loan, later on.

Your lender might sell the right to service the loan to a different party as well. In other words, another company will handle the administrative aspects of the loan, such as your payment and paperwork. The new party will then handle the loan servicing and is sometimes called a "subservicer."

What Do I Need To Do If My Loan Servicer Transfers?

When your loan servicer transfers, you'll receive one or two notices that your servicer has changed and that your payments must go to a new servicer. Notices must include:

• the date of the servicing transfer
• contact information for the new and old servicer
• the date the old servicer will stop accepting mortgage payments
• the date the new servicer will start accepting your payments
• a statement that the transfer will not change your mortgage loan terms

After a servicing transfer, you have a limited amount of time in which you can still send your mortgage payments to the old servicer instead of your new servicer. After a certain amount of time, your old servicer will have to forward your payments to your new servicer or send it back to you.

As a borrower, what should you do if your loan servicer transfers? Consider setting up automatic mortgage payments, creating a new online account, checking on final payments with the original mortgage lender and acquiring all contact information for the new servicer in order to discuss any home loan issues. Doing so can help you get settled in with your new loan servicer.

The Bottom Line: Selling Mortgages Is A Common Occurrence

Very often, mortgage lenders sell mortgage loans to a government-owned or government-sponsored corporation such as Fannie Mae, Freddie Mac, Ginnie Mae or a smaller investor not affiliated with the government. If your mortgage is sold, you shouldn't spend time worrying about it. Think of it as your lender's way of trying to keep doing what they do best – originating mortgage loans and working with borrowers. Just be aware of where your loan payment should go if your servicer transfers.

Understand more about navigating your mortgage in our mortgage basics Learning Center.