Why Your Mortgage Can Be Sold
Have you ever been a situation where your mortgage was sold by your lender to another firm? You take out a loan from a bank or a mortgage company and in a few months later you find out your loan have been sold. Some lenders would sell a mortgage despite the fact that you can handle it for as long as 30 years. Don’t be surprised by your lender does this to you, it is very common for them to sell a loan.
Now the question is, why would they sell it when I did not assign them to do so? To answer this question, we need to first understand the difference between the two types of lenders available; Mortgage Banks and Depository Institutions.
- Mortgage Banks: These lenders fall under the largest number of mortgage companies or as they want to be called “Mortgage Banking Firms” or Mortgage Banks. They’re state-chartered temporary lenders with a must to sell their originated loans as they don’t have that much time stated in the loan term to hold them permanent. While mortgage banks always sell their loan, they may keep the servicing under contract by the buyer.
- Depository Institutions: These are commercial banks, credit unions, and loan and savings institutions. They work with both the Federal and State governments. They can successfully hold mortgages permanently no matter the mortgage term.
Why your mortgage can be sold?
There are mainly two reasons your mortgage can be sold to a new institution;
- Capital: Mortgage banks would need to maintain a large pool of money on hand at all times in order to offer loans to other clients. When a loan is sold, the lender has obviously sold the servicing terms to the new institution. This gives them more money for which they can offer loans to other borrowers. Just in case they borrowed a total of $50 million to one borrower over a period of 10 years, they must be running out of cash and may need to keep lending. They can only survive by selling your mortgage to other lenders with the ability to handle it for that long.
They earn more out of sale: One more reason a might consider selling your loan is if they make more money off the sale. Mortgage lenders make a commission have a commission made from selling your loan. If a lender is selling a loan package worth a million dollars, they earn a 1% commission summing up to $10,000 out of the $1,000,000. This is a way of making an immediate profit out of loans. The banker now has secured a million dollars to be re-loan to other clients.
