Selling Mortgages: How It Works And Why Your Mortgage Might Be Sold
You’ve just received a letter informing you that your home loan has been purchased by an investor. You might feel upset or confused, since you carefully picked the mortgage lender you wanted to work with – does this change or jeopardize that?
We have good news: You don’t have to worry. This is a totally normal part of the mortgage process. Rocket Mortgage® still services your mortgage, and you’ll still get that great customer service you had before you closed.
If you’re wondering why mortgage companies sell loans, then keep reading.
Who Sells Mortgage Loans?
After buying a home, you might receive a letter stating that your mortgage loan has been purchased by an investor. But who sold it? The short answer is banks and lenders.
Why are banks selling mortgages? Well, it’s all about liquidity. Banks and lenders need to have enough money to continue to offer mortgages to homeowners. Usually, the purchasing investor will be one of the three government-owned or government-sponsored corporations that deal in mortgages: Fannie Mae, Freddie Mac and Ginnie Mae. Occasionally, a smaller, nongovernmental investor will be the one to purchase your mortgage.
Before we get into the “why” of mortgage investors, it may be helpful to first go over a few different terms.
A lender can also be a mortgage originator in the secondary market, and is an entity that lent you the money to purchase your home. Lenders are one of the first steps in buying a home considering the borrower will need to find an interest rate that works for their financial situation.
A servicer is the entity that handles your mortgage after you’ve closed on your home. They’re the people you send your monthly mortgage payments to.
An investor is the entity that purchases mortgages from lenders and can be a mortgage aggregator as well. Investors include Fannie Mae and Freddie Mac, both of which purchase conventional loans, and Ginnie Mae, which purchases Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans.
Sometimes lenders will retain the servicing rights on mortgages they originated, while the mortgage itself is purchased by an investor. This means that you’ll still work with and make payments to the same company you got your loan with, but that company doesn’t technically own the mortgage anymore. The servicer collects your payments and passes them along to the investor.
Try not to confuse the above terms with a bank, which is often used as a general term and doesn’t really tell us anything about the entity’s role in your mortgage.
Why Do Banks Sell Mortgages?
Again, it’s all about liquidity. Banks and lenders need to have enough money to extend mortgages to homeowners. With the real estate market constantly changing, financial security is important for all parties involved in the mortgage process.
Think about the typical 30-year loan term. If a mortgage lender has its money tied up in that transaction for the full 30 years, it will have less money to offer future mortgages. By allowing the mortgage to be sold to an investor, the lender now has the capital and money flow to continue to lend to other borrowers.
On a larger scale, this process is a part of how the mortgage market works. Investors keep the market liquid so lenders can continue to help borrowers purchase homes.
The Bottom Line
While selling mortgages is extremely common, it’s important as a homeowner to understand the process as well as who is involved. No matter where life takes you – whether that’s a new home or a home refinance – we’re here to help you every step of the way. Contact us today to speak with a Home Loan Expert!