Mar 10, 2019

When most people ask, "will you sell my loan?" what they really mean is, "will you sell the servicing of my loan?"

Nearly every conventional conforming (Fannie Mae or Freddie Mac) or government (FHA, VA and USDA) loan will be sold on the secondary market.  It wouldn't be practical for lenders to hang onto every loan they originated.  New American Funding, the company for whom I work, is a small to medium sized lender.  And our servicing portfolio is over $28 billion.  If we had $28 billion outstanding at any one time, we'd go broke!  So the loans are sold on the secondary market, thereby creating new capital so that we can make new loans to new customers.

Nearly all banks sell their loans.  Big banks, little banks, local banks, credit unions, etc.  There are exceptions, like if you're getting a really unusual type of "portfolio" loan.  But most people don't fall into that category.

And your loan being sold is no big deal.  In fact, you'll probably never notice unless you get a letter in the mail.  It doesn't change your interest rate.  It doesn't change your payment amount or where you make your payment or anything related to your loan.  It happens electronically behind the scenes and unless you pay really close attention, you'll have no idea when it happens.

But you will notice if your lender sells the servicing of your loan.  Your servicer sends billing statements, collects payment, and pays property taxes and homeowner's insurance from your escrow account.  You know your servicing has been sold when Evergreen Mortgage, for instance, sends you a letter saying that Bank of America is going to handle your mortgage now.  Evergreen washes their hands of you.  And now you make your payments to Bank of America, your statements have a Bank of America logo on them, and you call Bank of America customer service when you need help.

When your servicing is sold, the terms of your loan don't change.  You keep the same interest rate, payment, and payoff date.  But it can be a pain, especially if it happens often.

You might have to change your automatic payments with your bank.  You might accidentally send a payment to the wrong lender because you didn't get your notice in time or you just forgot.  You might have really liked Evergreen and don't particularly care for Bank of America.  Maybe Bank of America accidentally reports a late payment to the credit bureau, which will get corrected in the end, but could be a hassle if you're in the middle of buying a car or financing a vacation home.

So how can you be certain that your loan's servicing won't be sold?  You can't.  Not 100%.  But there are a few things you can do to minimize your chances.

The first thing you have to understand is the four types of mortgage lenders:

  • Depository institutions or banks have access to the mortgage products for sale by their institution.  An employee of the bank originates the loan (helps the customer fill out the application, collects paperwork, suggests the best loan product for the customer).  An employee of the bank underwrites the loan.  The bank funds the loan with its own money and often services the loan.  Wells Fargo and First Federal are both depository institutions.
  • An independent mortgage company operates much like a bank.  Employees of the company originate and underwrite the loans.  They fund the loan with their own money and often service the loan.  The main difference between a bank and independent mortgage company is that the mortgage company only does mortgages.  They don't offer checking accounts or auto loans.  New American Funding is an independent mortgage company.
  • You're probably also familiar with a mortgage broker.  A broker doesn't lend money at all.  They have a relationship with a number of "wholesale lenders" - probably many of the same depository institutions and independent mortgage companies above.  The mortgage broker originates the loan.  But that's where their role ends.  They hand the loan paperwork off to the lender they select for underwriting, funding and servicing.
  • There's also a fourth category that you may not have heard of:  the correspondent lender.  The correspondent lender is kind of a hybrid between a direct lender and a mortgage broker.  A correspondent lender has very close relationships with a small number of lenders.  An employee of the correspondent lender takes the loan application and probably underwrites the loan in-house.  But when that underwriter reviews the loan, she knows it's going to be sold to Caliber or Chase.  So she's underwriting to their guidelines, not the guidelines of the company for which she works.  The correspondent lender will fund the loan.  But immediately after funding, the loan will be sold to the chosen investor, probably before the borrower even makes his first payment.
Chart of Categories of Mortgage Lending Institutions

So what does this have to do with servicing?  Some categories of lenders are more likely to sell the servicing of their loans than others.  For instance, a depository institution or independent mortgage company is more likely to retain the servicing.  If you utilize a mortgage broker, you won't even know who the lender is until you get to closing.  And with a correspondent lender, your servicing will definitely be sold, probably before you make your first payment.

To make matters even more confusing, many lenders switch roles for different types of loans.  For instance, I work for an independent mortgage company and most of the time I'm lending my company's money.  But I have the ability to broker loans if I have a scenario that doesn't fit the standard mold.  I also have correspondent lending relationships with a handful of lenders, mostly for jumbo loans.

Some small banks don't lend money at all.  They act strictly as mortgage brokers.  Other lenders may service FHA loans but not VA loans. 

If you're concerned about the name you write on your check every month, your best bet is to consult with your loan officer. 

Also, while the lender's intent may be to retain servicing, sometimes things change and they (almost) always reserve the right to sell the servicing at any time.  Even if your lender has serviced your loan for ten years, they could decide they need some capital and sell off half their servicing portfolio, for instance.  It happens.

But knowing the type of lender you're using and discussing your concerns with your loan officer will both protect you and help you get the best mortgage products for your needs.