Signing on the dotted line for a mortgage means that you’re stuck making payments for the next 15 or 30 years but not necessarily to the same lender. It’s not uncommon for banks to buy and sell mortgage loans and federal law doesn’t require lenders to get the green light from homeowners beforehand.
When your loan is sold or transferred to another lender or servicer, you’re still on the hook for the mortgage but how you make your payments may be affected. If you’ve received a notice that your loan has been sold, knowing what to expect going forward can make the change less stressful.
Why mortgage loans are sold
Money is typically the reason why a lender chooses to sell or transfer a mortgage loan. In some cases, it’s done to free up capital which can then be used to make additional loans to new borrowers. In others, the goal is to generate revenue from the loan’s sale. For instance, if your lender sells your mortgage but continues to be the loan servicer, they make money by charging the new lender a service fee.
Whether or not you’ve been making your payments on time or how much you still owe on your loan doesn’t factor into whether your mortgage gets sold or not. Even though you may not view it that way, it’s really nothing personal as far as the bank is concerned.
Understanding your rights
Banks are prohibited from selling mortgage loans without letting the homeowners in on what’s happening. Legally, both the old lender and the new lender are obligated to send you a written notice informing you that your mortgage has been sold within 15 days of the sale. The letters should outline who the new lender is, where to send your payments to, what methods you can use to pay the loan and when your next payment is due.
One of the things that can be the most confusing about having your loan sold is where to send your payment. If you’ve received notices from both lenders, you should make your payments to the new lender going forward. Otherwise, you’ll want to keep paying the old one until you get that second letter in the mail.
While the mortgage is being transferred, you’ll have a 60-day grace period which prevents the new lender from charging you a late fee on a payment. That means that if you pay the old lender in error, you can’t be penalized for it. The new lender also can’t report any late payments on your credit during this period or declare your loan delinquent.
It’s important to note that just because another lender now owns your loan, it doesn’t give them the right to amend the terms of your mortgage, including your monthly payment or interest rate. If you’ve gotten a letter stating that your loan has been sold, that’s likely to be your biggest fear but federal law prevents the new lender from changing your loan in any way.
How having your mortgage sold affects a modification
Loan modifications are designed to make mortgages more affordable for struggling homeowners but having your loan sold can throw a wrench in your plans. If you’re trying to get approval for a modification or short sale, you may have to begin the process all over again if your lender sells your mortgage, which can be problematic if your finances are already tight.
If you’re aiming for a modification, for example, you’re required to make trial payments before it’s formally approved. If you have to start all over again, the new lender may require a higher trial payment amount which can put even more strain on your budget. In the case of a short sale, having to wait a few more months to get some relief will only result in additional damage to your credit if you’re already behind on the payments.
Resolving issues after the loan is sold
Most of the time, having your mortgage sold to a different lender is relatively hassle-free. The biggest inconvenience may be changing your automatic bank draft if you normally have your monthly payments taken straight out of your account each month. That doesn’t mean, however, that some homeowners won’t encounter a speed bump or two along the way.
If you have a problem after the loan is sold, such as a misapplied payment or charges for fees that you don’t recognize, you’re responsible for notifying the new lender in a timely manner. Complaints, questions or requests for information must be sent to the lender in writing in a separate correspondence from your monthly payment. Once the lender receives it, they’re required to respond within 20 business days. If the problem is something that requires some extensive investigation to resolve, they have to handle it within 60 business days.
When getting in touch with the lender directly doesn’t do the trick, the next step is to file a complaint with the Consumer Financial Protection Bureau. This is an independent government agency that oversees consumer protections in the financial sector. If you file a complaint with the CFPB, your lender has to follow-up within 15 days. You can also file separate complaints with the Federal Trade Commission and your state’s Attorney General’s office.
Read the fine print
While there’s nothing you can do to prevent your mortgage from being sold or reassigned, you can take steps to protect yourself against potential issues down the road. When you receive your first mortgage statement from the new lender, take time to go over it carefully to look for errors or discrepancies. If you see something that appears to be incorrect, you’ll need to dispute this information with the lender.
The very worst thing you can do when finding out your mortgage has been sold is to simply shrug it off. At the very least, you’ll want to read your notification letter carefully to find out where your next payment needs to go. Keeping yourself in the loop as much as possible ensures that you don’t run into any major snafus once the transition is complete.