Some banks and lenders pass your mortgage around like a joint at a Phish concert, and now they’re competing more fiercely for puffs of your interest payments.
Most of you homeowners have opened up a letter from an unfamiliar lender only to learn that your mortgage has a new home. According to a new Wall Street Journal report, those notices are going out more and more due to some bigger trends in the mortgage industry.
Lenders make money in a few different ways. The one you know is by making loans (duh).
Another way is by collecting your payments on loans, which is called servicing. Mortgage servicers do a bunch of stuff, like:
-Collect and process your payments
-Report your loan balance and interest paid to you (important for tax benefits)
-Manage your escrow account to pay your property taxes and insurance
-Respond to your questions
They get a hit of the loan interest they collect for doing this, but the problem for you is lenders will keep or sell servicing rights as rates rise and fall.
The value of these rights to a lender is higher when rates in their servicing portfolio are lower because your loan is less likely to refinance so they’ll have you on their servicing books longer. But as rates move, servicing values change, and lenders can and do sell your servicing.
Federal laws allow them to do this as long as they disclose it to you. Julian explains this a lot better than I can—that’s why Zillow asked him to create their official voice on the topic. See Reference links below for more.
For most of us, our problem with servicing is we’re not used to getting these notices that our loan has been sold.
It can make you feel pissed off and powerless, but the selling of servicing is something you must agree to when you first get a loan or you can’t get the loan—it’s just the way the U.S. mortgage market works.
So here’s a rundown of the basics:
-Your loan terms can’t change when servicing changes. The only thing that changes is the lender sending you statements and collecting payments.
-Make your lender specifically walk you through the servicing transfer disclosures when you first close a home purchase or refinance loan. These disclosures are always in the packet you sign (whether you’re signing paper or digital docs), and knowing about the first transfer after you close can chill you out. Also, if lenders do intend to sell the loan, those up-front disclosures often have the name of the new bank—so at least you’ll know the new bank’s name when you see mail from them right after the initial close.
-Servicing can transfer again after this first post-close transfer, as noted in the paragraph above about how lenders sell servicing according to market conditions.
-Federal laws require lenders to tell you whether they’re going to sell your loan within three days of you applying for a loan.
-Pay attention for a document called the Servicing Disclosure Statement (or something similar) in the docs you sign. This will tell you if your lender will keep the loan when it closes, sell it right away, or sell it in the future.
-No matter who you’re paying, if you have to pay your mortgage late, lenders won’t report you to a credit bureau until you’re a month late, and the new lender who takes over your servicing can’t charge you a late fee even if you’re up to 60 days late.
Hopefully these quick hits help chill you out, and if you still feel like blowing smoke when you see that transfer notice come in the mail next time, make like you’re at a Phish concert and stay cool. You’re #adulting now. This is part of the deal.
If you have servicing horror stories or want us to go deeper, drop us a line.