Why Was My Mortgage Sold to Another Company?

Your mortgage was sold to a new company — what does that mean? No need to stress — it's actually a common practice. In this article, we break down what you need to know and how it affects you.

You comparison shopped and chose your mortgage lender carefully. Then, shortly after closing, you received a letter from a new company introducing themselves as your servicing provider. What does this change really mean?

Having your loan suddenly sold to a new lender may raise questions, particularly with first-time homebuyers. You may be wondering: Is your lender allowed to do this? Will your carefully budgeted payment amount suddenly change? Here’s what you need to know about your mortgage being sold to another company.

What It Means When Your Mortgage Is Sold

To understand what it means when your mortgage is sold, let's start by reviewing the entities involved with the funding and maintenance of your home loan.

When you obtain a mortgage, you may end up working with two entities: mortgage originators and mortgage servicers.

• Mortgage originators. These are the companies or institutions (like banks or mortgage lenders) that help you secure your loan. They handle tasks like processing your application, underwriting, and funding the loan.
• Mortgage servicers. After your loan closes, it enters the servicing phase. Servicers manage the administrative side of your mortgage, including payment collection and escrow management.

Borrowers may work with a certain originator initially, and a separate or different servicer thereafter, unless — as is the case with Pennymac — the originator also provides servicing.

When you’ve been notified that your mortgage has been sold, it often means that the servicing rights for your loan have been transferred to a new company. This means you’ll send your monthly payments to a new servicer, who will handle the day-to-day management of your loan, such as collecting payments, managing escrow accounts, and providing customer service.

What Does This Change Mean for You?

The only noticeable changes when your mortgage is sold is where you send your monthly payment, your customer service contact, and perhaps a new online platform to manage your loan should your servicer be a new company. While the transfer process may seem significant, it doesn’t affect the terms of your loan or the amount you owe — it simply changes the company managing your loan.

Why Do Mortgages Get Sold?

There are a few primary reasons why mortgages get sold.

A Mortgage Originator May Not Service Loans

Many mortgage originators do not service loans and, as a result, sell your loan shortly after it funds to a mortgage servicer.

However, some companies, such as Pennymac, originate and service mortgages. In this case, your loan remains with your originator after it funds, and you retain the relationship with your lender (often for the life of your loan).

To Free Up Capital

Lenders often sell or transfer mortgages to free up capital, converting long-term loans into immediate cash. This practice allows them to meet federal cash reserve requirements and continue offering new loans to other borrowers. For you, as a borrower, this means your mortgage might be sold or transferred multiple times over its life.

Reduce Risks

Many mortgage lenders sell loans because they are not equipped administratively to deal with the entire different set of laws and regulations and procedures that apply to the servicing of a mortgage, and want to avoid the risk, responsibility and cost of taking on that formidable task. For example, servicers must handle escrow accounts, lender-placed insurance, loss mitigation procedures, disclosures, and payment processing, as well as defaults and delinquent accounts.

What Happens When Your Mortgage Is Sold?

Getting notified that your mortgage has been sold might sound scary, but it shouldn’t. You may have to send payments to a new servicer, but your loan terms remain the same.

Any payment changes are ones that would take place regardless of whether or not your loan was sold to another company. For example, your payment amounts can change if you have an adjustable-rate mortgage (ARM) or other type of adjustable loan. If you have a fixed-rate loan, your payments will only change if factors outside the scope of your loan (e.g., mortgage insurance or property taxes) also change.

Who Owns Your Mortgage?

This is where the subject can get confusing, because neither the company that originated your loan nor the servicer may actually own your loan.

Today, a large percentage of home loans are purchased from lenders by the government-sponsored entities Fannie Mae and Freddie Mac. This is done to free up capital in the mortgage lending space, enabling lenders to provide financing for more individuals seeking mortgages. In other instances, a home loan might be held by a portfolio lender or purchased by private investors in the secondary market. These privately purchased loans are often bundled into mortgage-backed securities (MBS). MBS backed by loans insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA) are guaranteed by the government entity Ginnie Mae. Conventional mortgage-backed securities, on the other hand, are typically guaranteed by Fannie Mae or Freddie Mac. Regardless of the scenario, the purchaser becomes the official loan owner, even if another company is responsible for servicing the loan.

What to Be Aware of if Your Mortgage Was Sold

Remember, when your mortgage is sold, the terms of your loan remain unchanged. However, staying informed and proactive is important to ensure a smooth transition and avoid potential issues. Here are key things to keep in mind during the process:

Update Contact Information

Ensure you have the correct contact information for your new servicer. Verify their customer service number, mailing address, and online account portal (if available). This will make it easier to reach them for questions or to address issues promptly.

Make Any Automated Payment Updates

If you had automated payments set up with your previous servicer, remember to update the bill pay information in your bank account to avoid missed or misdirected payments. This means you would need to delete the automatic bill pay you had set up with your old servicer and then create an entirely new bill pay with your new account number and the servicer’s information, which includes the billing address and the company’s name. Your new servicer should be communicating all the information needed to set up your automatic payments.

Be Aware of Changes in Features

Switching servicers may result in the loss of certain features, such as online account access or paperless statements, which not all servicers provide. Check what tools and conveniences your new servicer offers and adapt your account management accordingly.

Confirm Information

Keep an eye out for potential lapses in communication during the transition. Confirm with both the old and new servicer that the transfer has been processed correctly, and verify your account details to ensure everything is accurate.

Keep Good Records

Hold onto your mortgage statements from the months before and after the transfer to the new servicer. Having these documents on hand ensures you have proof of timely payments if any disputes or misunderstandings arise.

Watch for Timing Issues

You may not know if and when your loan will be sold. If you’re in the process of a loan modification when your loan is sold, you should not have to start the process all over again with your new mortgage servicer. However, you should keep accurate records of what you’ve sent and received to ensure no loan modification issues result from the transfer to your new servicer.

If you happen to be in the process of refinancing your loan when you get notification of a change in ownership on the original loan, alert the lender you are refinancing with immediately so the correct payoff on the original loan is made.. Keep in mind that when you refinance, your old loan will be entirely settled and paid off and you obtain a brand new loan to replace it. Once the refinance has officially closed, you will have a new loan (that may or may not be sold after the origination phase), and any notification on the transfer of ownership of the original loan should no longer apply. It’s important to note that prior to closing on the new loan, however, you will still be responsible for making payments on your existing mortgage.

What Are My Rights and Responsibilities?

As a mortgagor, you do have certain rights. Similarly, the lender, or mortgagee, has legal and fiduciary responsibilities to ensure you are treated fairly. Some of those rights include:

• Your current lender must provide you with a loan ownership transfer notice when your mortgage is sold.
• The new mortgage servicer must notify you of the following within 15 days:
• How to reach the new servicer (transferee) with questions about the transfer. This includes their name, address, and a phone number you can call collect or toll-free.
• How to reach your current servicer (transferor) with questions about the transfer. This includes their name, address, and a phone number you can call collect or toll-free.
• The last day your current servicer will accept payments and the first day your new servicer will. These dates will be either the same or right after each other.
• Whether the transfer will impact any optional insurance you have (like mortgage life or disability insurance) and what you need to do to keep your coverage.
• A reminder that the servicing transfer only affects how your loan is managed, not the original terms and conditions of your mortgage.
• Within the first 60 days of the transfer of your loan, there is a grace period during which a payment that is late as a result of sending it to the previous servicer will not be treated as such (e.g., the credit bureaus will not be notified that the payment was late). It is your responsibility to read the statement from your new mortgage servicer very carefully to confirm that all of the information is accurate. You should immediately contact the new mortgage servicer if you spot any issues or errors.

Mortgage Sales Frequently Asked Questions

Why wasn’t I asked permission?

Your mortgage can be sold without your consent and may be sold multiple times. However, lenders are required to disclose when the sale has occurred.

Can I prevent or refuse the sale of my mortgage?

As a homeowner, you cannot prevent your mortgage from being sold or transferred. Lenders have the legal right to sell loans to other entities, lenders or investors under federal law and the terms outlined in your loan contract. But remember that mortgage selling is standard in the industry, and your loan terms will remain the same as they were when you took out your mortgage.

What if I have an issue with the new mortgage servicing company?

If you have an issue with your new mortgage servicing company, contact them and discuss your problem. Include your name, account number and contact details when describing your issue. If sending a letter, the servicer must acknowledge receipt within five days and respond with a resolution or next steps within 30 days. While you cannot choose your servicing company, you do have rights. Visit the Consumer Financial Protection Bureau website for more information on current regulations regarding mortgage servicing transfers.

Why would my mortgage loan be transferred?

Mortgages are often transferred or sold to free up funds for lenders to issue new loans, allowing them to continue lending to other borrowers while another entity services your loan.

Your mortgage may also be transferred or sold because your particular lender is solely a mortgage originator, meaning they set up loans but do not handle the ongoing servicing. Mortgage servicers specialize in managing tasks like collecting monthly payments, handling escrow accounts, and providing customer support for the loan duration.

Is it bad for a lender to sell your mortgage?

While there are no negative implications if your mortgage is sold, it certainly can be a hassle for a borrower to have to continuously track where to make payments and stay on top of whether a new servicer has taken over the loan. That said, unless you originate with a lender who also handles servicing (such as Pennymac) it is part and parcel as to how the industry functions. The sale process keeps the mortgage market active and ensures a continuous flow of funds for new homebuyers and homeowners.

It Pays to Pay Attention to Your Mortgage

Although it can sometimes confuse homeowners, the freedom to sell loans allows lenders and servicers to remain stable and profitable — freeing up more funds for homebuyers like you. If your loan is sold, be proactive with questions and organized with your new payment information. Paying attention to this quick and easy process will lead to a stress-free transition for you and your new mortgage servicer.

Also remember that Pennymac is one of the top loan servicers in the country, having served over 5 million homeowners and counting. When you originate your loan with Pennymac, our commitment to your loan will most usually extend beyond origination and last throughout the servicing phase.

Has your mortgage been transferred to Pennymac? Contact a Pennymac Loan Expert today. Our highly trained staff will answer any questions you may have on loan servicing or any other portion of the mortgage process.