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Can a Bank Sell Your Loan?

Once you get approved for a mortgage and start paying your monthly installments, the terms you’ve agreed upon stay the same until the mortgage has been paid. However, it may happen that you get notified about transferred rights, so you wonder – can a bank sell your loan?

Can a bank sell your loan? The simple answer is yes. A bank or another financial institution can sell the rights to your loan to another bank. Federal banking laws and other regulations allow banks to transfer the rights for servicing the loan to another lending organization. However, there is no need to be worried, as the terms of the loan don’t change.

Two people calculating a loan

The client’s consent is not required in cases where the servicing rights for a loan have been transferred. However, the servicer is obliged to notify consumers, so there won’t be any mistakes about the address and name of the company regarding payments.

Can a Bank Sell Your Loan?

For an average American, being in the process of buying a house is the pursuit of their dreams. Once you enter the mortgage market, there are many unknowns you encounter along the way. But as you slowly approach your goals and learn that even students can get a mortgage (if they have enough funds for a down payment and regular installments,) you start to grasp everything.

Although your mortgage is personal property, it may happen that you suddenly get notified about the servicing rights to your loan being transferred to another bank. You shouldn’t fret about it because it’s a standard practice among lenders. It may even happen to the same loan multiple times. There are federal regulations and banking laws in practice that allow lenders to sell the servicing right to another institution.

How the Mortgage Rights Transfer Affects a Borrower

So, what does it mean for you as a borrower? First of all, you should understand that you don’t keep the deed if you have a mortgage, but the lender does. And you should also keep in mind that they view the home loan mortgage quite differently than you – as a financial asset. Once they sell the servicing rights to another institution, the other company becomes responsible for collecting monthly payments. That means that for you, as a borrower, the only thing that changes is the name of the company and the address where you direct your monthly transactions.

Why Would My Bank Sell the Loan?

Imagine you’ve read some City Creek Mortgage reviews (for example) and decided to partner up with them and get a mortgage. Everything runs smoothly, and you get approved instantly, so you’re left with a lovely roof over your head and regular monthly payments. But suddenly, you get a notification letter that states the rights to service your loan has been transferred to, let’s say, A+ Mortgage. Why did this happen?

Usually, when we think about any financial organization, we imagine that they have countless amounts of money available at all times. However, banks, as well as other lenders, don’t own endless funds, so there might be two probable scenarios why they would decide to sell a loan.

To Gain Back Some of the Capital

A bank or any other lender may decide to sell the servicing rights to a loan to gain capital. Since most mortgages take from 15 to 30 years to get paid off, and the sum they lend out can be high, that means the lender won’t be able to provide any more cash at some point. It would literally mean they need to own billions of dollars in cash to issue loans to every borrower. So, by selling some of the loans, a part of the capital is returned to them.

To Create Profit

There are several ways a lender earns money by giving out a loan. They service the loan and thus make money by charging originating fees at the start of the process. They also earn regular interest and collect it from the borrower in monthly payments. But administering the loan also has value because a lender will earn a small percentage of the interest rate.

A woman holding a thumb up

What Are My Rights as a Home Loan Borrower?

When and if the transfer happens, there is no need to be alarmed. The most important thing is that the terms of your loan do not change in any way. But both institutions are obliged to notify you. The originator should let you know of this transfer no less than 15 days before the transfer process begins. Also, the new owner of the servicing rights is due to send you a notification within 30 days after the transfer is concluded.

After you are notified as it is required, you get a grace period. This grace period lasts for 60 days, and it is meant as protection from mistakes. You have enough time in these two months to get informed about the address and new company’s name, so there aren’t any mishaps with the location of the payment.

The new servicer, aka the bank which purchased the servicing rights to your loan, will probably require you to fill out some new paperwork. A new servicing agent should also be assigned to you, and they will handle any concerns you may have.

What Is Included in the Notification Letter?

The new owner of the servicing rights should notify you within 30 days after the transfer is concluded. This notification should contain the following:

  • The full name of the new owner (in this case, the full name of the bank),
  • The full address and contact details of the servicer,
  • The contact of the individual that is available to you to resolve any issues,
  • The date when the transfer was concluded,
  • The information on whether the transfer was included in the public records.

Mortgage Rights Transfer Will Not Affect Your Loan

If it happens that you are notified your loan now has another servicer, there is nothing you should worry about. There is no effect on the terms of the mortgage loan when the rights have been transferred, and it is even considered a standard practice in the mortgage market. However, lenders are required by federal banking laws to notify their clients of this transfer in a period also regulated by laws.

Before you start to panic, keep in mind that everything regarding your signed loan terms should stay the same, save but the address and the name of the company that services the loan. But also note that if you notice anything out of the ordinary, you should contact the bank right away to try and sort things out.