As you probably know, Federal banking laws allow banks and other financial institutions to sell both the mortgages they originate and/or the “servicing rights” for a mortgage to other institutions. “Servicing rights” refers to the company that actually collects mortgage payments and distributes the money to the mortgage holder, insurance company, etc.
Why mortgages and servicing rights are soldThe reason mortgages are sold is because the sale makes money for the seller. When the service rights are sold, that makes room for the lender to lend again since the loan is, from their point of view, paid off. Since they charge fees for everything from loan origination to administration fees as well as the interest they can actually make additional money by selling those rights.
What your client needs to checkThere will be no change in the terms of the mortgage if it’s sold. The buyer buys it subject to the original terms. The mortgage originator is required to notify the buyer if they sell the mortgage. It’s called a notice of loan transfer and tells the person paying the mortgage that the instrument has been sold. The institution buying the loan is also required to notify the mortgagee within 30 days of the transfer date. That notification is required to include:
- The new owner’s name, address and telephone number
- Who to contact if there are issues about loan payments if different from the new owner.
- Of any right to rescind the loan exists and if so who holds it (this should have also been part of the original agreement.)
- The date of transfer. and whether the transfer of ownership is recorded in public records.