Much about the home-buying process can be confusing. When you add mortgages to the mix, it can become even more challenging. From interest rates to closing costs, it can be tough to keep track of everything it takes to become a homeowner.
What We'll Cover
Unfortunately, being prepared for 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 this mean?
In truth, it happens all the time — banks frequently sell their mortgages to other financial institutions. Here’s why they do it: to free up money for selling more mortgages. Fortunately, 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 it's been sold, read on to learn more about why banks sell mortgages and what you can do when this happens. We'll also let you know about banks that don't sell their mortgages and how you can refinance if your bank sells yours.
Why Did My Bank Sell My Mortgage?
Although you may not have realized it, banks sell their mortgages all the time. Consider this from the lender’s point of view. Banks loan borrowers money and then wait to be paid back over the course of 15 or 30 years.
However, that's not how they typically make a profit — instead, banks charge interest at a rate that’s agreed upon when the mortgage is issued. The profit that banks make from interest payments can be astronomical.
For example, a homebuyer who takes out a 30-year mortgage of $200,000 with an interest rate of 4% can expect to pay over $135,000 in interest to the bank over the course of that 30-year period.
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.
When your mortgage is sold, you continue to make payments, but you do so to a different lender. The terms of your payment don’t change, however.
Additionally, banks will sometimes sell mortgages to other institutions in order to free up credit so they can extend mortgages to other buyers. Because banks make money on the fees associated with originating mortgages, it's ideal for them to initiate as many mortgages as possible.
That said, it’s important to note that your consent isn’t required if your bank decides to sell your mortgage. However, there’s 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 Real Estate Settlement Procedures Act (RESPA) and provide you with a Servicing Disclosure Statement.
This statement will tell you whether your bank will:
- Service the loan i.e. collect payments, send you account statements each month, and manage escrow funds for paying real estate taxes and home insurance premiums
- Sell the loan before your first payment is due, so all services (including your monthly mortgage statements) will be provided by the new lender
- Provide all servicing but sell the loan at a future date
Ultimately, it’s important to know that banks sell mortgages for reasons totally unrelated to you, the customer. They simply want to free up capital to attract new borrowers.
What Should I Do If My Bank Sold My Mortgage?
First, don't panic! As explained above, banks sell mortgages for reasons of their own, mostly because they want to make money or increase their available credit.
If your bank has sold your mortgage, it doesn't bear any reflection on you, your creditworthiness, or your financial viability.
If your bank sells your mortgage, the good news is that things will likely remain the same for you, unless you want to refinance your mortgage (see below). You can continue to pay off your mortgage, although you'll now send payments to the institution your bank sold your mortgage to.
Your monthly payment amounts won’t change, even if your new lender has different mortgage interest rates or fees. You'll still be able to make the same monthly payments and pay the same interest rate you agreed upon when you signed your original mortgage agreement.
The only time you may need to take action would be if your former and new lenders neglected to update you about the change in a timely manner.
Within 30 days of the official change in ownership, your new lender must reach out to you to provide its contact information, and your former lender must send you a loan ownership transfer notice.
If either lender fails to alert you in a timely manner, causing you to make a late payment, you can take action. File complaints with your former or new lenders and get in touch with the Consumer Financial Protection Bureau to fill out a mortgage complaint form.
Fortunately, there's a 60-day grace period for payments after your mortgage is sold. During this time, you can’t be charged a late fee for mistakenly sending your mortgage payment to your former rather than new lender. Any late payments made during this time period also can’t be reported to credit agencies.
Although transitioning from an old lender to a new one should be relatively simple, it's important to be aware of any changes made to your mortgage. Once your mortgage has been sold, it's important to ensure that your payments are made on time and to the correct institution.
List Of Banks That Don’t Sell Their Mortgages
Are you 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, which are also more likely to offer lower rates, fewer fees, and better customer service. Some of them include:
- Rosedale Federal Savings & Loan Association. Rosedale Federal is a Maryland-based bank that prides itself on being a hometown lender. It doesn’t sell its loans.
- Pentagon Federal Credit Union. The nation's second-largest credit union, PenFed is known for its low rates and its practice of handling mortgages in-house.
- Member First Mortgage. Member First Mortgage is owned by 11 credit unions and handles its mortgages in-house instead of selling them to larger financial institutions.
The list of banks that don’t sell their mortgages varies widely by geographic area. If you're interested in working with a mortgage lender who won'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 instead of 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 has been sold, or if you're concerned it may use predatory lending tactics on you, you have an option: refinancing with another bank or lender.
Refinancing is a process that allows you to renegotiate the terms of your mortgage. This can involve changing your monthly payment, increasing or decreasing the timescale of your mortgage (for example switching from a 15-year to 30-year mortgage), transitioning from an adjustable-rate to a fixed-rate loan, or even getting rid of your mortgage insurance.
All of this can save you money in either the short or long term.
In order to identify the right move for you, determine what your priorities are. For instance, is paying off your mortgage as quickly as possible a priority? If so, refinancing to a 15-year mortgage may be right for you.
Once you identify your main reason for refinancing, you can begin to look for the best rates, apply for refinancing with your preferred lenders, lock in a lender, and close the deal.
Although the decision to refinance is personal, there are some factors to consider. Homeowners with adjustable-rate mortgages and high-interest rates are often encouraged to refinance.
Additionally, many finance experts recommend switching from a 30-year to 15-year mortgage. If you can comfortably make the higher payments, you’ll be able to pay off your mortgage faster.
Refinancing your mortgage is made easy with tools like BestRates. Clicking the button below will lead you to a form that asks for your zip code. Then, you'll select the refinance option. BestRates will then present to you 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 a notice that your mortgage has been sold to another financial institution. Although nothing should change in terms of your mortgage payments, you may prefer not to do business with the institution that now holds 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 a historic low, now is a great time to refinance your mortgage. Click the button below for your free refinance quote and start turning your dreams of mortgage-free homeownership into a reality.