You've just closed on your new home and have finished unpacking and begin to settle in. You pick up your mail and you find a notice letting you know that your mortgage has been sold on the secondary market and is being serviced by a new company. You are stunned and question If this allowed? Then you start to worry if the terms of your mortgage have somehow changed? You ask yourself Why would the lender sell my mortgage?
One of the many documents you signed up front during the mortgage application was a a document called Mortgage Servicing Disclosure. This document reports what percentage of the lender’s loans are sold off. Quite often, the majority of approved and funded loans approved by a particular mortgage company will immediately be sold to someone else.
It's important to understand that just when your mortgage is sold off to another company, nothing else changes. the loan terms, the monthly loan payment and the interest rate cannot and will not be changed.
You might be wondering Why a lender would go through all the effort of originating, approving, and funding a loan just to forgo all the interest that new loan provides? The answer is surprisingly simple. If not for selling the loan, the lender would soon run out of money to lend.
Mortgage companies today work with a line of credit. They are not typically using their own funds to fund the loan. When it’s time to fund your loan, the lender uses a portion of their line of credit for the necessary amount. In order to replenish this line of credit, the lender must sell the loan to a third party.
After selling the loan, the lender once again has more funds to make additional loans. Who buys these loans? Very often these loans are sold to other mortgage companies, but eventually the loan will be bought by either Fannie Mae or Freddie Mac.
The marketplace for all this loan buying and selling is called the secondary market for mortgages. This secondary market is robust and active and keeps the mortgage market liquid. Without a secondary market, there would be fewer loans issued and still fewer choices. When your loan is sold it’s not because your original lender doesn’t appreciate your business, it’s so they can continue to service other home buyers and make more loans.
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