Can a Loan Company Sell Your Loan?

You have already gone through the home buying process and begun paying your monthly installments regularly and on time. However, you are notified that your mortgage loan has been sold to another lending company. Before you start panicking about can a loan company sell your loan, you should know what it means.

Can a loan company sell your loan? The answer is yes. A mortgage company can sell your mortgage loan to another lender. However, there is no need to be alarmed, as this is common practice among lenders. A sold loan means that the original lender has sold the rights for servicing the loan to another company. Everything remains the same, but the address of the mortgage payments.

An individual writing on a piece of paper

If your home mortgage loan has been sold, it simply means that the rights to collect the monthly principal and interest rates have been transferred to another company. There are many reasons why the original lender may want to sell the loan.

Can a Loan Company Sell Your Loan?

When you enter the home buying process, one of the first things you should do is reach out to different lenders and shop for the best deal on the market. After you choose the offer that suits you, you are still in the primary market, where you are the shopper, and the lending company is the retailer. Once you are approved, the lender will lend you the required amount of money with which you make the purchase and then close the deal.

The moment you start making regular monthly payments, the lender can keep the mortgage and service it. It means they will be the ones collecting these monthly installments for the life of the loan, or they can choose to sell the rights and collect a servicing release fee.

Loans can be sold in two ways. Primarily, it can be sold as a whole. Secondly, it may be pooled among many other similar home mortgage loans and then sold to different investors. These investors can be insurance companies, pension funds, mutual funds or international banks, and other financial institutions. The servicer takes on the role of the one responsible for collecting the monthly payments. Then, they distribute these collected funds to those that hold the rights to the loan.

Why Was My Home Loan Sold?

I admit that the mortgage process is complex, and half of the time, you have a feeling you don’t understand what’s going on and what your rights are (like, whether mortgage tax is tax-deductible). But, getting notified that your loan has been sold is nothing you should worry about. You shouldn’t take it personally because a mortgage is a lien, and a lender views the borrowed sum just as another financial asset. It usually takes from 15 to 30 years to pay off the lent money so they may sell it for these reasons:

  • Your lender is not in the position to provide all the interested parties with a loan. The money they have lent to their clients comes back slowly, over the course of 15 to 30 years, so they might not have enough cash accumulated through servicing to give out new loans. Potential investors can be just what they need because they have a larger amount of capital at hand.
  • Loans are meant to make a profit, and the profit is also generated the moment a lender sells the loan to another company or institution.

Do Lenders Require Permission to Sell a Loan?

If you are bothered by the legal aspects of this transfer, you shouldn’t be. Lending institutions and companies are allowed to sell mortgages or otherwise transfer these servicing rights to others by the federal banking laws. After all, a mortgage is a piece of personal property. The consent of the clients in question is not required by the law.

However, keep in mind that your original lender is indeed required to notify you in due time that the mortgage loan will be handled and serviced by another company. This notification should be sent to you no less than 15 days before the transfer is in the process. The company that has purchased your loan is also required to provide the contact details for monthly payments within the next 30 days after the transfer is completed. Additionally, you also get a 60-day grace period. This is to protect you from any initial mistake you can make because of the change in location for the payments.

Does Something Change for Me as the Borrower?

There is really no need to worry about the transferred rights. For you as a borrower, almost everything remains the same. Your escrow pays for your homeowner’s insurance, and you can get your mortgage deed (a copy of) from the servicer. The only impact you will feel is that you are required to write a different company name on the check you prepare for a monthly mortgage payment. Or your online payments will be completed on a different website. All the terms you have agreed upon and then signed will remain the same. This includes the term, the type of the mortgage loan, and your interest rate.

However, if anything happens that doesn’t feel right, or you notice some of the terms have changed, you will need to act immediately. Contact the new company and try to resolve the issue right away. If that doesn’t work out, you should file a claim to the Consumer Financial Protection Bureau.

An individual writing on a piece of paper

Having a New Lender on the Same Mortgage Doesn’t Affect Your Loan

Transferring rights of a home mortgage loan is standard practice, and it doesn’t affect any term of your loan. However, lenders are legally required to inform their clients of any transfers between different mortgage companies. Everything you’ve agreed upon when closing the mortgage loan remains precisely the same, and no actions on your part are required. The only thing that changes is the address of the payments. However, you may be required by the new company to do some new paperwork, but a servicer will be appointed to handle all your concerns and questions.

You have already gone through the home buying process and begun paying your monthly installments regularly and on time. However, you are notified that your mortgage loan has been sold to another lending company. Before you start panicking about can a loan company sell your loan, you should know what it means.