Do You Know Where Your Mortgage Is? Here’s Where It Could Be
Americans are accustomed to going to their bank, obtaining a mortgage and paying the same bill to the same institution for 20 or 30 years. While the provision to sell off your mortgage to a third party is written into most mortgages, it’s something rarely paid attention to. The mortgage service has an obligation to provide you — to the best of its knowledge — the name, address and telephone number of who owns your loan. But…why?
According to the Consumer Finance Protection Bureau (CFPB), it’s not always easy to tell who owns your mortgage. Many mortgages are sold and the servicer you pay every month may not even own your mortgage. Whenever the owner of your loan transfers the mortgage to a new owner, the new owner is required to send you a notice. You can look up who owns your mortgage by using The Mortgage Electronic Registration System here.
Banks make money from mortgages through interest payments. Most mortgages, however, are 20 or 30 years, and more often than not, banks don’t want to wait that long to collect on a profit. In order to turn a quicker profit, they sell your mortgage for a commission to another bank or servicer, thus providing them instant cash. What’s better, they often bundle mortgages amongst groups of people to make even more money.
Banks can also free up their balance sheets when they sell off mortgages. When banks are selling loans, what they are really selling are the servicing rights to the loans. This frees up lines of credit and allows lenders to lend money out to other borrowers, thus increasing the interest payments and/or opportunity for other commissions by selling them off eventually, as well– not to mention money made on fees for originating the mortgage to begin with.
This is also done to free up credit to meet regulatory standards to have new business come in. While the industry is heavily regulated, specifically after the Great Recession (which came from loose mortgage regulations), there are still potential downsides to having your mortgage punted off to an unknown servicer.
According to The Mortgage Professor, borrower dissatisfaction with poor loan servicing is high. Lenders can sell the loan and the new lender can shorten the grace period for you to pay by the new due date, tripling the late fee on unassuming customers. New lenders can potentially not pay the taxes on time or for the correct amount, too. A new lender might even buy insurance on a house and add the premium to the loan balance, even if you already have insurance.
Other problems that are noted include new lenders sending statements showing only the monthly payments, and not the total balance. This means the customer has no idea how they are applying their mortgage payment and to what. Perhaps one of the more egregious acts encountered involves a customer having their servicing transferred to another firm, and the new firm converting it to simple interest.
It is up to you to make sure your mortgage is serviced in a way you feel comfortable with, but it can be difficult to switch out of a servicer once your bank punts it off. Before buying a home, see what your options are in terms of mortgage servicing and the rights your bank had to sell it to someone else. Also, make sure you are fully aware of whether or not your mortgage is being sold — and to whom — to be ready for any changes or suspicious activity.
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Last updated: September 9, 2021