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You might be surprised or even upset to receive a letter telling you that your mortgage is being sold to another financial institution.
There’s nothing inherently bad about your loan being sold — the terms of the loan will not change. But you could run into problems if you fail to recognize the change. That could cause you to miss payments, costing you late charges and eventually hurting your credit score. Here’s a look at why mortgages are sold and how you can protect yourself.
Why do mortgages get sold?
Many consumers don’t realize there’s a thriving market for loans, referred to as the secondary market. When you borrow from a bank, credit union or nonbank lender, the fine print may say the loan could be sold.
Lenders sell mortgages so they have money to lend to other borrowers. Some sell loans to other financial institutions but keep the servicing rights. In this case, the customer deals with the same lender and sends the payments to the same place. It hardly affects consumers, since the point of contact doesn’t change.
However, not all lenders have the capacity to continue servicing the loans they fund, so some lenders will make changes that include selling both the debt and the servicing rights. When that happens, customers have to send payments to a new company and deal with that new party if problems arise.
What happens next
When a loan changes hands, your debt goes with it, but the terms of the loan and your interest rate stay the same. When a loan is sold, the lender must send you a transfer notice within 30 days. It should contain information about the new loan holder, including contact details. If the notice says the loan’s servicing was also transferred, it’ll tell you where to send payments and when.
How to protect yourself
When your loan is sold, errors such as lost mail or processing mistakes can occur. Here are some steps to take to keep on top of the payments:
Always open mail from your lenders; don’t assume it’s junk.
When you receive a notice, look closely to see whether the loan servicer (the payment recipient) is changing.
If you are notified that a servicer is changing, check with your old and new lender to determine whether you need to update account information such as names, addresses, account numbers and loan terms.
If you’ve set up automatic payments, contact the new servicer to see what you may need to change.
Find out when to stop payments to the original lender, then stop them or schedule them to stop.
After you make your first payment, call to verify it went to the right place.
Once you receive your first statement from the new lender, check to see that everything is correct.
Because it’s common for lenders to sell off mortgages, don’t panic if you are informed that yours was sold. Keeping an eye on your mail and following these precautions can help you avoid missed payments that can damage your credit history.