Why Was My Mortgage Sold?



You settled on your new home and now you are receiving a letter that your loan was sold!? Confused as to why this happened and what this means? I am happy to help explain as this is quite a common occurrence and anticipated to happen throughout the life of a loan. It is part of the “circle of life” in the mortgage industry.

 


The circle of life of a mortgage loan explained:

So when you, the borrower, take out the mortgage loan to buy your new home at for example, a 3% interest rate, this loan is like an income stream to the lender, so the company who gives out this loan at 3% , can decide if they want to hold onto the loan or try to sell it to another company who may have a servicing portfolio. A servicer may or may not have actual ownership of the loan but they are the ones who take the incoming payments from borrowers and are responsible for administering all of the various payments out made for taxes, homeowners insurance and when needed PMI. Since Fannie Mae/Freddie Mac/FHA/VA eventually fund about 70% of all mortgage loans the loan is likely to eventually be sold to them and administered by one of these large servicing companies. 


So a particular mortgage company may have done $20 Million in loans all at 3% in a given month. They may sell those loans to another Bank or larger mortgage company who does business with 20 companies that do the same thing so they now have $400 million in loans for that month all at that 3% interest rate. They original lenders get paid a fee to originate and settle those loans so that fee actually will give it an effective income stream of 2.875% (not really the exact scale but it works for illustration purposes).


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They can then sell those loans to Fannie Mae/Freddie Mac/FHA/VA and receive a fee from them which would further lower the net income stream to 2.75% but wait! Fannie Mae/Freddie Mac/FHA/VA do not want to service those loans (they buy Billions every month) so they pay a fee for that bundle of loans to be serviced from either the seller or another servicing company so then now the net income stream from those loans may be 2.625%. 


In other words Since Fannie Mae/Freddie Mac/FHA/VA is the end purchaser of the massive bundles of loans, they need help with actually monitoring your loan among the many others and facilitating your monthly payment servicing (when your taxes and insurance have to be paid out, or when you have questions on your loan or need help with making payments online, etc), so they will pay the mortgage servicer a  fee for the “servicing” on all these loans that were bundled.


So then what happens?

What does Fannie Mae do with these loans now since they have billions and billions of dollars each month of bundled loans? They sell them as a mortgage-backed security investment, in our example at a guaranteed income stream of let’s say 2.25%. These are typically bought by hedge funds or fund managers for their clients’ investment portfolio (could be yours) and are called Mortgage Backed Securities. Many times our government will buy them to give stability to this market place and to the economy as a whole. YOU can even buy them in some form. So, see how this circles back? You could be buying back/funding in your investments, your original mortgage loan! 


Now, what does this mean for your new mortgage loan?

Expect that at some point after settlement, your loan will be sold (usually within 15-60 days). Mortgage companies will send you a goodbye letter, detailing that your loan has been sold and where to make payments to in the future.  You can always reach out to your original loan consultant if you need any assistance or have any questions. I hope this explains the circle of life, reach out with any questions- Kevin Berju, www.PhillyMortgageTeam.com or PhillyMortgageGuy@gmail.com.

Article Written By: Kevin Berju


Looking for a Lender in Philadelphia? Contact the Philly Mortgage Team. Click below.

 

Kevin Berju starts Philly Mortgage Team with over 25 years in the mortgage industry. Prior to working with residential and commercial mortgages, Kevin graduated with a business degree from Temple University, owned his own business, and worked as an agent for years in both commercial & residential Real Estate. With Kevin’s diverse knowledge of the real estate and mortgage industries, his clients are thoroughly guided throughout their home buying or refinance process. As a result of his knowledge, attention to detail, responsiveness to his clients, and exceptional work ethic, Kevin was awarded the Five Star Mortgage Professional recognition in Philadelphia Magazine for the past successive years as well as reaching the top 1% of all originators country wide since 2012 as designated by Mortgage Executive magazine.

As a mortgage professional for over 2 decades, Kevin is an invaluable resource for both first-time and experienced home buyers. With his accomplishment of the Certified Mortgage Planning Specialist designation, Kevin is placed in an elite group of the top 5% of mortgage professionals in the industry. Looking to Purchase or Refinance in Pennsylvania, New Jersey, or Florida? Kevin Berju is the Lender for You!

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