Why Lenders Sell Your Mortgage
One federally required disclosure that you will receive when applying for a mortgage is that your lender can sell your mortgage. Let's look at what this means and how it affects your loan terms.
Definition And Purpose Of A Mortgage Sale
Once a lender has granted you a mortgage loan, you must service it as long as you own it. Service includes collecting your payments and reporting the balance to you. It also includes managing your escrow account for payment of your property taxes and insurance.
It is common for a lender to make a loan to you and then sell the mortgage to another entity that takes over-servicing. Mortgage lenders do this to make money or raise capital for new loans.
Under the Real Estate Settlement Procedures Acts (RESPA), federal law allows lenders to sell loans so long as they disclose it within three days of you submitting your application.
The Servicing Disclosure Statement (or similar) is the most common name for the disclosure that you will receive. This document will explain clearly whether the lender will:
You can keep the loan. All servicing, including your monthly mortgage statements, comes from the original lender who granted the loan.
You can sell the loan before the first payment is due. All servicing, including your monthly mortgage statements, will be provided by a new entity.
You can sell the loan at a weak point in the future. The original lender will initially handle all servicing (including your monthly mortgage statements) but may notify you later that they sell the loan to a new servicer.
The terms of your loan will not change, no matter what scenario the lender confirms in their servicing disclosure. A Note is the most important document you will sign. It defines the terms of your loan.
Your Rights and the Mortgage Sale Process
Whether your lender made the loan or not, the Truth In Lending Act (TILA) requires that lenders protect you.
Your existing servicer must inform you in writing that they are selling your loan no later than 15 days before the effective transfer date. You must be informed by them when they will stop accepting payments.
Your loan servicer must inform you in writing that they are taking over your loan no later than 15 days after the effective transfer date. You must be provided with their name, address, phone number, and the date they will accept your first payment.
If you receive both notices, the combined notice must reach you no later than 15 days before the effective transfer day.
Protection During Transfer
RESPA protects you in the loan servicing transfer process. The new lender will not charge late fees for the first 60 days after loan transfers from the previous lender.
This will protect you against additional fees if your payment is sent to an old lender after the cutoff date. To get accidental payments properly rerouted, you will need to contact both lenders.
