When you buy a house and get a mortgage, one of the clauses in the contract you sign goes over your lender's right to sell your mortgage to another company or investor. This can happen at any time, and when it does, you should receive a letter in the mail with the new owner's contact information. In most cases, this does not change the terms of your original agreement. But, things can get a little tricky when you're dealing with a loan modification.
The Loan Modification Process
Things vary a little between mortgage companies, but the basic process goes like this:
- Contact your mortgage company and inform them of your difficulty making the monthly payment.
- Discuss loan modifications.
- Receive application, fill it out, and gather documentation.
- Deliver application and supporting documents to mortgage lender.
- Lender reviews application.
- Application approved or denied.
The length of this process also varies from lender to lender, and it's a good question to ask when you discuss loan modifications with your lender. However, one of the ways you can speed up the process is to ensure you have all the required documentation sent in on the first request.
Mortgage Loan Sold to an Investor
As we mentioned, it's possible for your mortgage lender to sell your loan to another company or investor whenever they choose. This includes during a loan modification process, whether you've just submitted the application to get the ball rolling, or you've been approved but the details haven't yet been finalized.
Why Mortgage Companies Sell Loans
There are two primary reasons your mortgage company may have chosen to sell your loan. The first has to do with freeing up their capital. Despite public perception, mortgage companies and banks don't operate on a cashless basis. They have to have money to loan before they can approve a mortgage. Since most mortgages take 15 to 30 years to complete, each loan they approve is one they have to deny for other borrowers.
In the case of loan modifications, extending the length of a loan means they can't lend to other borrowers. In this case, lenders may choose to sell off mortgages where the length of time is extended to free up capital for more lending. This isn't intended as a punishment to homeowners. It's merely a way to keep business revolving and lend to other borrowers at the same time.
The second reason your mortgage company may have chosen to sell your loan was to make money off the sale. There are several ways your lender can make money from the sale of your loan, but at the end of the day, the sale should not affect you or your loan modification.
Issues that Might Arise When Transferring Loan Modifications
First, it's important to note that your mortgage wasn't necessarily sold just because you applied for a loan modification and were approved, nor were you likely the only homeowner whose loan was sold. Generally, when an investor buys mortgages, they buy them in chunks. That means thousands of documents are transferred between the old servicer and the new servicer.
Fortunately, mortgage companies have policies and procedures in place to ensure your agreement with the old servicer still stands with the new servicer. If you were approved for a loan modification with your old servicer, the new servicer must honor the agreement. If you have trouble with this, you have the right to contact an attorney. An attorney will be able to help you take the right steps to ensure the new servicer adheres to the agreement of the loan modification.
Mortgage companies have a legal obligation to protect homeowners during these transfers, but logistically, transferring that much paperwork is a challenge. People are behind those transfers, and sometimes, mistakes do happen. If you notice an error with your new paperwork, the way your information is listed, or if you receive notice regarding your modification that differs from your agreement with your old servicer, contact your new lender immediately.
Loan Modifications Pending before Sale
If you applied for a loan modification and the process was still pending when you received notice your mortgage was sold, you may be asked to reapply for the loan modification. Each company handles the process differently, and you may have to fill out a new application that is slightly different from the one you filled out before, speak to new staff members, and send payments to a different address.
Despite this being a hassle, as long as both the old servicer and the new servicer informed you of the sale within 30 days of the transfer, you'll have to follow the new servicer's rules for loan modifications if you want to be approved. However, if one or the other lender failed to notify you of the sale, then you have grounds for legal action. Consult with an attorney to discuss your next steps.
Finding out your mortgage has been sold to another company or investor can feel quite personal, especially if you're struggling to make your payments. However, keep in mind, it wasn't a personal decision, and you likely weren't the only homeowner affected during that sale. The terms and conditions of your mortgage remain the same, including any loan modifications you were approved for before the transfer occurred. The only thing that should change is the address to which you send your payments.