Why do banks sell their mortgages – and which don’t

Much about the home buying process can be confusing. When you add mortgages to the mix, things can get even trickier. From interest rates to closing costs, it can be difficult to keep track of everything that goes into becoming a homeowner.

Unfortunately, be prepared for that everything is next to impossible, and sometimes life can throw you a curveball. As one of our users recently asked:

Bank of America sold my mortgage to Carrington. What does that mean?

The truth is it happens all the time – banks often sell their mortgages to other financial institutions. They do it for one reason: to free up money to sell more mortgages. Luckily, this common occurrence doesn’t have to keep you up at night.

If you’re interested in demystifying the process of paying off your mortgage after you sell it, read on to learn more about why banks sell mortgages and what you can do if you do. We also tell you about banks that won’t sell their mortgages and how to refinance if your bank sells yours.

Why did my bank sell my mortgage?

Although you may not have noticed, banks are selling their mortgages all the time. Look at this from the lender’s perspective. Banks lend money to borrowers and then wait 15 or 30 years for repayment.

However, they usually don’t make a profit from it – instead, banks charge interest at a rate agreed upon when the mortgage is made. The profit banks make on interest payments can be astronomical.

For example, a homebuyer who takes out a $200,000 30-year mortgage at a 4% interest rate can expect to pay the bank over $135,000 in interest over the course of that 30 years.

However, sometimes it’s less appealing for banks to wait 30 years to make $135,000 when they can sell the mortgage to Fannie Mae, Freddie Mac, or another financial institution for a commission.

If your mortgage is sold, you continue to make payments, but to a different lender. However, the terms of payment do not change.

In addition, banks sometimes sell mortgages to other institutions to free up credit so they can extend mortgages to other buyers. Since banks make money from mortgage origination fees, it is ideal for them to initiate as many mortgages as possible.

However, it is important to note that if your bank decides to sell your mortgage, your approval is not required. However there is one way to find out whether your bank or financial institution will sell your loan.

When you apply for a mortgage, your bank must comply with the terms of the mortgage Real Estate Settlement Procedure Act (RESPA) and provide you with a maintenance disclosure statement.

This extract will tell you if your bank:

  • Servicing the loan, which means collecting payments, sending you statements each month, and managing trust funds to pay property taxes and home insurance premiums
  • Sell ​​the loan before your first payment is due so that all services (including your monthly mortgage statements) are handled by the new lender
  • Offer all the services but sell the loan at a later date

Finally, it’s important to realize that banks sell mortgages for reasons that have nothing to do with you, the customer. They simply want to free up capital to attract new borrowers.

What should I do if my bank has sold my mortgage?

First, don’t panic! As discussed above, banks sell mortgages for their own reasons, most often to make money or increase their available credit.

If your bank has sold your mortgage, it will not affect you, your credit score or your financial viability in any way.

If your bank sells your mortgage, the good news is things will likely stay the same for you unless you choose to refinance your mortgage (see below). You can continue to pay off your mortgage, although you are now sending payments to the institution to which your bank sold your mortgage.

Your monthly payment amounts will not change even if your new lender has different mortgage rates or fees. You can continue to make the same monthly payments and pay the same interest rate that you agreed to when you signed your original mortgage agreement.

The only time you might need to take action would be if your former and new lenders failed to notify you of the change in a timely manner.

Within 30 days of the official change of ownership, your new lender must contact you to provide you with their contact information, and your former lender must send you a notification of the loan ownership change.

If one of the lenders fails to notify you in a timely manner and causes you to make a late payment, there are actions you can take. File complaints with your former or new lenders and contact the Consumer Financial Protection Bureau to fill out a mortgage complaint form.

Fortunately, there is a 60-day grace period for payments after your mortgage is sold. During this time, you cannot be charged a late fee for accidentally sending your mortgage payment to your former lender and not your new lender. Late payments during this period also cannot be reported to credit bureaus.

Although moving from an old lender to a new one should be relatively easy, it’s important to be aware of any changes to your mortgage. After your mortgage has been sold, it is important to ensure that your payments are made on time and to the correct institution.

List of banks that do not sell their mortgages

Worried about your mortgages being sold? Fortunately, there are banks that don’t sell their mortgages, many of which are referred to as “portfolio lenders.”

Many of them are small, community-oriented banks and credit unions that also tend to offer lower interest rates, fewer fees, and better customer service. Some of them include:

  • Rosedale Federal Savings & Loan Association. Rosedale Federal is a Maryland-based bank proud to be a hometown lender. It does not sell its loans.
  • Pentagon Federal Credit Union. The country’s second-largest credit union, PenFed, is known for its low interest rates and practice of in-house servicing of mortgages.
  • Member first mortgage. Owned by 11 credit unions, Member First Mortgage processes its mortgages in-house rather than selling them to larger financial institutions.

The list of banks that don’t sell their mortgages varies widely by geographic region. If you’re interested in working with a mortgage lender that doesn’t sell your mortgage to Fannie Mae, Freddie Mac, Carrington Mortgage Services, or another financial institution, check out the credit unions in your area.

They are more likely to service your mortgage in-house rather than selling it to another organization. Unlike banks, credit unions are non-profit organizations focused on providing better products and services to their members.

Credit unions also charge lower processing fees and closing costs, another plus if you’re looking to save on monthly mortgage payments.

Should I refinance my mortgage?

If you prefer not to do business with the institution to which your first mortgage was sold, or are concerned that they may use predatory lending tactics against you, you have an option: refinance with another bank or lender.

Refinance is a process that allows you to renegotiate the terms of your mortgage. This may include changing your monthly payment, increasing or decreasing the term of your mortgage (e.g. switching from a 15-year mortgage to a 30-year mortgage), moving from an adjustable-rate loan to a fixed-rate loan, or even eliminating it your mortgage insurance.

All of this can save you money in the short or long term.

To find the right move for you, determine what your priorities are. For example, is paying off your mortgage as quickly as possible your priority? Then refinancing into a 15-year mortgage might be right for you.

Once you identify your primary reason for refinancing, you can search for the best interest rates, apply for refinance from your favorite lenders, retain a lender, and close the deal.

Although the decision to refinance is personal, there are a few factors to consider. Homeowners with adjustable rate mortgages and high interest rates are often encouraged to refinance.

In addition, many financial experts recommend switching from a 30-year mortgage to a 15-year mortgage. If you can easily make the higher payments, you can pay off your mortgage faster.

Tools like BestRates make refinancing your mortgage a breeze. Clicking the button below will take you to a form asking for your zip code. Then choose the refinance option. BestRates will then present you with a list of the best options in your area to refinance your mortgage.

You have options when your bank sells your mortgage

It can be stressful when you receive notification that your mortgage has been sold to another financial institution. Although nothing should change in relation to your mortgage payments, you may prefer not to do business with the institution that is now holding your mortgage.

To avoid this dilemma, consider doing business with banks that don’t sell their mortgages, or refinance your mortgage with an institution that offers better terms.

With interest rates at historic lows, now is a good time to refinance your mortgage. Click the button below to receive your free refinance quote and start making your mortgage free home ownership dreams a reality.

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