Many homeowners are surprised to receive a letter stating that their mortgage servicer has changed. Financial institutions that issue mortgages are permitted to sell loans or to transfer the rights to service mortgages to other financial institutions without borrowers’ consent. That doesn’t mean the homeowner has done anything wrong or that there is anything to worry about.
How and Why Mortgages Change Hands
A mortgage originator works with borrowers to set up a mortgage, while a mortgage servicer takes care of administrative tasks, such as collecting payments and handling escrow accounts. Many mortgage originators don’t service loans. In those instances, after a borrower has obtained a mortgage, it’s quickly sold to a mortgage servicer. In some cases, a mortgage is owned by Fannie Mae, Freddie Mac or the Federal Housing Administration, not by the mortgage originator or servicer.
Mortgage lenders have a limited amount of money that they can lend to borrowers. They sometimes sell mortgages to free up credit so they can then issue mortgages to other homebuyers. Lenders may also sell mortgages to earn commissions. Sometimes a mortgage lender sells loans or the right to service them, but not ownership of the loans.
What to Expect If Your Mortgage Servicer Changes
The old servicer is usually required to notify customers at least 15 days before the effective date of transfer. The new servicer is usually required to provide a notice of transfer within 15 days after the effective date of the transfer. Sometimes both servicers send a combined notice at least 15 days before the effective date of transfer.
The new loan servicer must provide information on the transfer and how to contact the company. When you receive your first mortgage statement from the new loan servicer, review it to make sure all the information is accurate.
The new servicer may have different procedures and paperwork, but that doesn’t mean that the terms of your loan will change. If you have a fixed-rate mortgage, your monthly payments will only go up or down if your property taxes or private mortgage insurance change. Those have nothing to do with which company services your loan. The change in loan servicer just means that you will be sending your payments to a different company.
Lenders typically don’t give their customers any advance notice before a mortgage servicer changes. If you were in the process of modifying or refinancing your loan when the change occurred, you might not have to start over from scratch, but you should always keep accurate records to prevent problems and delays.
Many homeowners, particularly first-time owners, are shocked and confused when they find out that their loan servicer is about to change. The fact is, this happens all the time. If you have a new loan servicer, the old servicer made a business decision that had nothing to do with you personally and that will have a minimal effect on you.