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Do Banks Buy Mortgages?

Homebuyers paying their monthly installments on time and regularly might be a bit surprised if they receive notice about another bank now owning their loan. Do banks buy mortgages, is it common practice, and what does it mean for the borrower?

Do banks buy mortgages? Yes, banks buy mortgages as a common practice. What it means is that the original lender has sold the rights to service the loan to a bank that was interested in buying. However, there is no need to be worried if you have received such a notice. For the borrower, everything remains the same as per the contract, but the address where you are referring your payments.

Two people signing papers for a loan

This is all done in accordance with regulation permits and federal banking laws. It is also not required for them to get consent from the consumer. But what interest does a bank have in buying your loan and your original lender in selling?

Do Banks Buy Mortgages From the Original Lender?

Owning a home is a goal many of us strive for, and although the home-buying process in itself is unavoidable, it’s rather complex. But once you’ve gone through all the paperwork, you have the task of finding out whether you can mortgage land and figuring out are mortgage points closing costs. Eventually, it led you to a loan, and you were only left to pay your installments.

But it also may happen that you receive notice of your loan changing the servicer. So, another bank has bought your loan. How common is this, and what does it mean for you?

How Will This Affect You?

Your mortgage is personal property, that is true. And although you have received a letter that states your loan has been sold to a bank, it shouldn’t alarm you. This is a standard practice among lenders, and a single loan can be sold several times.

It’s essential to realize that the deed when you have a mortgage isn’t with you but instead with the lender. The lender’s view on the same loan also quite differs from yours – they view it as a financial asset. So, it’s no wonder that a bank can buy your loan or that a lender can sell it. Also, note that it is done according to federal banking laws, along with the regulation permit.

Once the rights to service a loan have been sold to a bank, it’s the bank’s responsibility to collect regular monthly payments. So, for you as a borrower, there’s only one thing that changes – the name of the financial institution you’re paying to and their address.

Keys on top of papers

There Are Several Reasons Why a Loan Is Sold

No matter which lender you’ve opted for, they may decide to sell your loan after some time. For example, you’ve read some absolutely positive Angel Oak Mortgage reviews and decided to apply for a loan from them. You’ve begun to pay the monthly installments regularly, but after some time, they have notified you that another organization, like Bank of America Mortgage, is now the servicer of the loan. But why would Angel Oak Mortgage decide to sell it? There may be several reasons for it:

  • The lender might have decided to sell your loan to gain back capital. In truth, most mortgages take quite some time to pay off – from 15 to 30 years. Along with the fact that the loan amount can be considerable, a lender may not be able to provide any other borrower with financing. By selling a loan to an interested bank, they manage to gain back some of the capital.
  • Another reason behind a decision to sell a loan is to create profit for the lender. Although lenders earn money by servicing the loan through originating fees and regular interest, there is another value in loans. The profit is also generated once the loan is sold to another bank.

The Difference Between a Mortgage Originator, a Servicer, and a Lender

From the first point of contact when you apply for a loan through a mortgage originator, through the contract with the lender that gives out the loan, and to the servicer, your loan goes through several stages. The table below shows the differences between the three.

Mortgage OriginatorServicerLender
Aids you in getting a loanThey manage a loan after closingThey finance a loan
They are paid to originate the loan through commission or feesThey can be the lender, although not necessarilyThey are a financial organization, such as a bank or a credit union
They can work independently, or for a financial organizationThey charge the lender for loan servicingThey earn money through the life of the loan on charging the interest

You Should Know Your Rights as a Borrower When the Loan Is Sold

While the terms of the loan stay the same when the rights for servicing have been sold to another bank, you should also know what your rights are. According to federal law, both of these financial organizations are obliged to notify the borrower of the loan being sold.

The mortgage originator should inform the borrower of this transaction at least 15 days before the start of the process. The bank that will be the new owner of the servicing rights has 30 days after the process is concluded to notify you. You should also keep in mind that you will get a grace period of 60 days in order to avoid any mistakes when making payments.

Keys on a contract

When a Bank Buys a Loan, It Doesn’t Affect the Loan Terms

If you get a notice about your loan being sold to another bank, you shouldn’t worry. The terms you’ve signed on your mortgage remain the same, with the exception of the company name and address to which you are making your payments. This is a standard practice amongst lenders and is a common occurrence in the mortgage market. But also keep in mind that if you notice anything out of the ordinary regarding your payments, contact the bank and sort it out right away.