You are all settled in your new home, and you’ve made your first payment. One day, you get the mail and notice a letter from your mortgage company. You open it, not knowing what to expect, and discover they have sold your loan to another company. Why?
Many first-time homeowners don’t realize that selling mortgages is extremely common place, and is actually a healthy practice that helps ensure the availability of credit to credit-worthy borrowers for future purchases.
Still, it can be disconcerting to get that notice, because you just spent a couple months getting to know your mortgage broker, have perhaps even shed a tear or two getting through the process, and you feel like the relationship you just built has now been betrayed. Fear not!
Most mortgage companies today do not sit on piles of cash that they are waiting to lend out. And it’s actually not what you want, because that would indicate a finite amount of money to lend. Once it’s gone, the mortgage company would not be able to make any more loans until they have received enough monthly payments to replenish their coffers!
Instead, the way most mortgage lenders operate is through a line of credit. When they make a new loan, they tap their line of credit in order to fund your mortgage. Then, they sell the mortgage, pay back the loan, and then turn around and do it all over again.
The buying and selling of loans keeps money moving and flowing in to the mortgage industry, allowing lenders to continue to lend. Often, the buyers of the loans are other banks, or ultimately Freddie Mac or Fannie Mae. Some may even be packaged into mortgage-backed securities that allow investors to inject capital into the mortgage market while profiting from the income on investment.
One way you find out about your mortgage brokers sale of loans is through the Mortgage Servicing Disclosure. This should be provided to you when you first apply for your loan, and it will tell you what percentage of loans the lender sells. Most loans will be sold at least once, and some multiple times. This is not a reflection on you, or the great relationship you built with your lender.
When it comes to buying or selling your home, we are here to help answer any questions and guide you through a better understanding. Please do not hesitate to contact us at firstname.lastname@example.org or phone us at 202.800.0800.
Tags: Tim Pierson, Northern Virginia, Mortgage Lending, Home Buyers, Mortgage Selling, Mortgage Servicers