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 sold
The 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 check
There 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.
It’s important that your client’s contact information is correct. They should double check loan numbers and if they are spelled out, monthly payments.
The next important point is when your client actually receives their first statement from the new holder of the mortgage. Again, all details should be double checked. The paperwork is likely to look quite different which means it may take a few minutes to really understand it – this is time well spent.
What if there are problems?
While most of the time there won’t be any problems, remember that a lot of information is being transferred from one institution to another – including numbers, addresses, etc. If your client spots a problem they should immediately get in touch with the proper person – referring to the notification they received from the new holder of the mortgage.
Although the client probably has no rights to prevent such a sale (and this is spelled out in the original mortgage documentation) the originator of the mortgage is required to protect them during the sale of the mortgage or servicing rights. If, for example, notification of the sale was never received and your client sends in the mortgage payment as usual which is then returned, swift action must be taken to avoid penalties. A complaint can and probably should be filed with the Consumer Financial Protection Bureau. It also makes sense for your client to consult with an attorney.
Most sales of mortgages and service rights go smoothly, but mistakes do happen. Even though the mortgage originator is required to provide notice, and so is the institution that acquired the mortgage or rights, it’s really up to the consumer to make sure things happen as they should and, if they don’t, to take the appropriate action.
Your role as a real estate agent is limited to advice giving in these cases. But your clients are likely to turn to you and ask for help. Provide the information, suggest they file a complaint is it’s warranted and hire an attorney. Remember you’re not an attorney, but you do have some specialized knowledge. Your goal, as always, is to be of service.