What To Do When Your Mortgage Is Sold To Another Bank

by Kevin on April 26, 2012

What should you do if you get a letter in the mail letting you know your mortgage has been sold from the original financing company to a bank?

Is it time to panic or just go on with your daily life like normal? And why do banks sell mortgages in the first place?

Your Mortgage is an Asset to the Mortgage Originator

When a bank originates a mortgage, it becomes an income producing asset on their balance sheet. They’ve already earned some fees from you from loan origination fees, which helps pad their profits on the loan. But they see your loan as an asset, and assets can be sold to new buyers.

Who Buys Mortgages?

Mortgage loans are sold on the secondary mortgage market where, essentially, your loan can be chopped up, combined with other loans, and sold as an investment. This is part of the reason the housing crisis turned into a financial crisis: there were a lot of packaged loans that were supposed to be bringing in a certain amount of interest income that stopped producing interest income at all. Those “safe” mortgage assets were sitting on bank balance sheets and became toxic — if you bought something intending to make consistent income off of it and it doesn’t produce at all, you’ve suddenly lost a lot of money.

There’s a great explanation of how the secondary mortgage market works at Investopedia. It walks through the major players and how your loan can be resold so many times.

Why Banks Sell Mortgages

Why would your bank want to sell your mortgage? First, obviously, is to profit. Second, by getting rid of your mortgage they can free up the capital (the thousands of dollars the bank lent you that it is now on the hook to recoup over the next 15 to 30 years) to then lend to a new borrower. They want to lend to another borrower, and the borrower after that, and so on, so they can earn origination fees, interest income, and commissions for selling the loan.

A bank may originate your loan today and immediately sell it on the secondary market. You may never be made aware of this (except buried deep in the paperwork) because your original bank may continue to service the loan throughout its term.

However, the servicing of your loan can be sold as well. If the lender intends to sell of the servicing of your loan as well, they must must disclose this to you per rules of the National Affordable Housing Act. In this case, when your loan is sold and the servicing with it, you must be notified of the loan-servicing sale no later than 15 days before the sale is to take place. Likewise, the new loan holder has to contact you within 15 days of the sale transfer occurring.

Steps to Take If Your Mortgage is Sold

If your mortgage is sold, you need to take notice and check on a few things.

First, has your loan been sold? Or has the loan and the servicing been sold? This is important because if the servicing has been sold as well your payments will be going to a new address (or a new website). You don’t want to send in a payment to the old servicer, only to have it returned weeks later and finding out you are now late on your mortgage.

You should receive notification in writing of the sale. This notification should give you specific instructions on what to do with your payments.

Second, don’t stop paying your mortgage. Even if you don’t get a follow up letter from the company that bought your loan, you must keep making payments. Usually a letter you receive will tell you that you should send payments to the old servicer up to the date before your next payment is due. On and after the due date, you should send payments into the new company. Again, the notification you receive in writing should indicate what to do.

Third, make sure your payments are processed and applied correctly. Just because you sent in a check and it was deposited doesn’t mean that somewhere in the banking system there isn’t an error showing you having not paid. This is especially true when your mortgage is sold — make absolutely sure the payment went through and was credited to your account correctly.

Aside from that, you have nothing to worry about. Keep paying on your mortgage like you always have, just make sure its to the new mortgage servicer.

{ 12 comments… read them below or add one }

John April 28, 2012 at 3:03 pm

This is a great article. I wish I had read this when our mortgage was sold to another bank. When we first got a letter in the mail regarding the mortgage sale, I was quite frustrated that mortgages could be sold – had no idea!

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nanci October 22, 2012 at 4:31 pm

what if the hello bank is not the bank you want your mortgage with? doesnt the homeowner have any say in the change.?

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ted meskers December 1, 2012 at 1:53 pm

When a lender sells your loan, which is in default, and another lender buys that loan, the question is why? Yes, the obvious reason is to regain some of their capital, another is to remove a headache from their books – however, if you are the borrower, and you loan has been sold to various lenders, why would the new lenders take on a loan in default?

It’s all about money – in my opinion, the banks sell off these troubled loans at a discount to another lender, without the borrower ever being given the opportunity to bid on the loan themselves. On top of that, what was paid for your loan isn’t exactly public knowledge – it’s kept secret. Some people in default have had their loans sold four, five and six times and each lender gave a discount the the next lender willing to take the chance.
How can a borrower find out how much was paid for his/her loan to the current lender in place? If lenders just sell your loan to anyone at anytime, why can’t the borrower be a part to that and know what is being offered to others?

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Kevin March 18, 2014 at 9:21 pm

My main issue with my loan being sold is it has been sold once a year.
And the servicers messing up the payments (misapplying or not applying), having to send proof of current insurance every time it is sold, servicer trying to charge for Insurance I already have and I already sent the docs, or receive threatening calls 5-10 days after payment, because they misapplied the payment. This is nuts, sure they make money, but I get to deal with their crappy software or personnel glitches when I could be working which helps me pay the darn mortgage. Talking with them once a month for 30 – 60 minutes is ridiculous.

I may have good credit, are in good standing, but my patience is sliding down fast.

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izraual June 22, 2015 at 11:02 am

Are they selling the loan or just the interest in it? I guess that would depend if it was still a loan or converted to a security/stock. That would be big deal and important to know if it was. If you default and find out a trust is foreclosing on you, then what? Why? Look up foreclosure fraud and ask yourself how the hell did all these peoples foreclosure cases become securities fraud litigation’s?

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Kelli winger May 16, 2014 at 2:46 pm

If you bank mortgage was sold to another bank where you credit card debt can they attach it?

Thanks. I also wish I had read this article found out by phone from my old bank when trying to make a payment.

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izraul February 27, 2015 at 3:40 am

Come man… really?! lol…

Just keep paying and do nothing? Yeah… and in 30 years when you finally pay it all off and expect to get your note in return, you find out they don’t have it.. does it matter? YES! I

f they sold it and kept collecting payments fraudulently then guess what… your screwed! And now whoever owns your note can come and demand payment and you will have no choice but to either pay a second time.. or lose your home! Does this happen? All the time!

You need to always check up on your loan wether your in trouble or not… send a QWR! Make them verify everything atleast every 5 years.. If your paying the wrong person you can get that $ back .. You will be glad you did…

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chuck March 2, 2015 at 10:13 pm

We got a loan through sterling savings, a local bank that has Done home loans and construction loans for decades. They sold my loan to the freaking Alabama housing authority (service solutions) across the country where no one speaks educated Englisha b d service sucks. We ghost ave been very pissed off since this happened before our first payment was even due…they screwed up on our escrow, taxes, two Months behind on our insurance they are to pay twice…it’s a joke. Do we have any recourse?

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izraual June 22, 2015 at 10:15 am

Hey Chuck, I don’t know about the recourse you may have in that state. Also, it would depend on how long ago this happened. The 1st thing I would do is comb through your mortgage docs very carefully. Look for signatures and notaries then look up the names and find out what you can about them. Was all your TILA information given? Are within the rescission period? Read everything closely. In the mean time you should send a Qualified Written Request (“QWR”). Find out who really funded the loan. You can find examples on line. They have to answer your questions or pay a fine to you if not. Write down all the names of anyone involved i.e. title company, escrow agent., and check their license and standing in your state. Find out if your loan was securitized and if so what trust is it in. Then check if its a REMIC trust. I’m sure you’ll find sooner or later the question will be, was it really a mortgage loan for you or a sale for a security by you?

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Noemi June 15, 2015 at 10:42 am

This is sooo FRUSTRATING!! My payment has been lost somewhere so now I have to fax over bank statements showing prior bank took payment out! It’s just ridiculous!!!

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izraual June 22, 2015 at 10:35 am

It’s sad when people won’t tell the truth. The article subject is great, but the info is garbage. Sorry, but it’s the truth. Here’s something to explain one part of the truth.. Lawyer v Banker

The attorney asked the banker, “What is court exhibit A?”

The banker responded by saying, “This is a promissory note.”

The attorney then asked, “Is there an agreement between Mr. Smith (borrower) and the defendant?”

The banker said, “Yes.”

The attorney asked, “Do you believe the agreement includes a lender and a borrower?”

The banker responded by saying, “Yes, I am the lender and Mr. Smith is the borrower.”

The attorney asked, “What do you believe the agreement is?”

The banker quickly responded, saying, ” We have the borrower sign the note and we give the borrower a check.”

The attorney asked, “Does this agreement show the words borrower, lender, loan, interest, credit, or money within the agreement?”

The banker responded by saying, “Sure it does.”

The attorney asked, `”According to your knowledge, who was to loan what to whom according to the written agreement?”

The banker responded by saying, “The lender loaned the borrower a $200,000 check. The borrower got the money and the house and has not repaid the money.”

The attorney noted that the banker never said that the bank received the promissory note as a loan from the borrower to the bank.She asked, “Do you believe an ordinary person can use ordinary terms and understand this written agreement?”

The banker said, “Yes.”

The attorney asked, “Do you believe you or your company legally own the promissory note and have the right to enforce payment from the borrower?”

The banker said, “Absolutely we own it and legally have the right to collect the money.”

The attorney asked, “Does the $200,000 note have actual cash value of $200,000? Actual cash value means the promissory note can be sold for $200,000 cash in the ordinary course of business.”

The banker said, “Yes.”

The attorney asked, “According to your understanding of the alleged agreement, how much actual cash value must the bank loan to the borrower in order for the bank to legally fulfil the agreement and legally own the promissory note?”

The banker said, “$200,000.”

The attorney asked, “According to your belief, if the borrower signs the promissory note and the bank refuses to loan the borrower $200,000 actual cash value, would the bank or borrower own the promissory note?”

The banker said, “The borrower would own it if the bank did not loan the money. The bank gave the borrower a check and that is how the borrower financed the purchase of the house.”

The attorney asked, “Do you believe that the borrower agreed to provide the bank with $200,000 of actual cash value which was used to fund the $200,000 bank loan check back to the same borrower, and then agreed to pay the bank back $200,000 plus interest?”

The banker said, “No. If the borrower provided the $200,000 to fund the check, there was no money loaned by the bank so the bank could not charge interest on money it never loaned.”

The attorney asked, “If this happened, in your opinion would the bank legally own the promissory note and be able to force Mr. Smith to pay the bank interest and principal payments?”

The banker said, “I am not a lawyer so I cannot answer legal questions.”

The attorney asked, ” Is it bank policy that when a borrower receives a $200,000 bank loan, the bank receives $200,000 actual cash value from the borrower, that this gives value to a $200,000 bank loan check, and this check is returned to the borrower as a bank loan which the borrower must repay?”

The banker said, “I do not know the bookkeeping entries.”

The attorney said, “I am asking you if this is the policy.”

The banker responded, “I do not recall.”

The attorney again asked, “Do you believe the agreement between Mr. Smith and the bank is that Mr. Smith provides the bank with actual cash value of $200,000 which is used to fund a $200,000 bank loan check back to himself which he is then required to repay plus interest back to the same bank?”

The banker said, ” I am not a lawyer.”

The attorney said, “Did you not say earlier that an ordinary person can use ordinary terms and understand this written agreement?”

The banker said, “Yes.”

The attorney handed the bank loan agreement marked “Exhibit B” to the banker. He said, “Is there anything in this agreement showing the borrower had knowledge or showing where the borrower gave the bank authorisation or permission for the bank to receive $200,000 actual cash value from him and to use this to fund the $200,000 bank loan check which obligates him to give the bank back $200,000 plus interest?”

The banker said, “No.”

The lawyer asked, “If the borrower provided the bank with actual cash value of $200,000 which the bank used to fund the $200,000 check and returned the check back to the alleged borrower as a bank loan check, in your opinion, did the bank loan $200,000 to the borrower?”

The banker said, “No.”

The attorney asked, “If a bank customer provides actual cash value of $200,000 to the bank and the bank returns $200,000 actual cash value back to the same customer, is this a swap or exchange of $200,000 for $200,000.”

The banker replied, “Yes.”

The attorney asked, “Did the agreement call for an exchange of $200,000 swapped for $200,000, or did it call for a $200,000 loan?”

The banker said, “A $200,000 loan.”

The attorney asked, “Is the bank to follow the Federal Reserve Bank policies and procedures when banks grant loans.”

The banker said, “Yes.”

The attorney asked, “What are the standard bank bookkeeping entries for granting loans according to the Federal Reserve Bank policies and procedures?” The attorney handed the banker FED publication Modern Money Mechanics, marked “Exhibit C”.

The banker said, “The promissory note is recorded as a bank asset and a new matching deposit (liability) is created. Then we issue a check from the new deposit back to the borrower.”

The attorney asked, “Is this not a swap or exchange of $200,000 for $200,000?”

The banker said, “This is the standard way to do it.” The attorney said, “Answer the question. Is it a swap or exchange of $200,000 actual cash value for $200,000 actual cash value? If the note funded the check, must they not both have equal value?”

The banker then pleaded the Fifth Amendment.

The attorney asked, “If the bank’s deposits (liabilities) increase, do the bank’s assets increase by an asset that has actual cash value?”

The banker said, “Yes.”

The attorney asked, “Is there any exception?”

The banker said, “Not that I know of.”

The attorney asked, “If the bank records a new deposit and records an asset on the bank’s books having actual cash value, would the actual cash value always come from a customer of the bank or an investor or a lender to the bank?”

The banker thought for a moment and said, “Yes.”

The attorney asked, “Is it the bank policy to record the promissory note as a bank asset offset by a new liability?”

The banker said, “Yes.”

The attorney said, “Does the promissory note have actual cash value equal to the amount of the bank loan check?”

The banker said “Yes.”

The attorney asked, “Does this bookkeeping entry prove that the borrower provided actual cash value to fund the bank loan check?”

The banker said, “Yes, the bank president told us to do it this way.”

The attorney asked, “How much actual cash value did the bank loan to obtain the promissory note?”

The banker said, “Nothing.”

The attorney asked, “How much actual cash value did the bank receive from the borrower?”

The banker said, “$200,000.”

The attorney said, “Is it true you received $200,000 actual cash value from the borrower, plus monthly payments and then you foreclosed and never invested one cent of legal tender or other depositors’ money to obtain the promissory note in the first place? Is it true that the borrower financed the whole transaction?”

The banker said, “Yes.”

The attorney asked, “Are you telling me the borrower agreed to give the bank $200,000 actual cash value for free and that the banker returned the actual cash value back to the same person as a bank loan?”

The banker said, “I was not there when the borrower agreed to the loan.”

The attorney asked, “Do the standard FED publications show the bank receives actual cash value from the borrower for free and that the bank returns it back to the borrower as a bank loan?”

The banker said, “Yes.”

The attorney said, “Do you believe the bank does this without the borrower’s knowledge or written permission or authorisation?”

The banker said, “No.”

The attorney asked, “To the best of your knowledge, is there written permission or authorisation for the bank to transfer $200,000 of actual cash value from the borrower to the bank and for the bank to keep it for free?

The banker said, “No.”

The attorney said, Does this allow the bank to use this $200,000 actual cash value to fund the $200,000 bank loan check back to the same borrower, forcing the borrower to pay the bank $200,000 plus interest? “

The banker said, “Yes.”

The attorney said, “If the bank transferred $200,000 actual cash value from the borrower to the bank, in this part of the transaction, did the bank loan anything of value to the borrower?”

The banker said, “No.” He knew that one must first deposit something having actual cash value (cash, check, or promissory note) to fund a check.

The attorney asked, “Is it the bank policy to first transfer the actual cash value from the alleged borrower to the lender for the amount of the alleged loan?”

The banker said, “Yes.”

The attorney asked, “Does the bank pay IRS tax on the actual cash value transferred from the alleged borrower to the bank?”

The banker answered, “No, because the actual cash value transferred shows up like a loan from the borrower to the bank, or a deposit which is the same thing, so it is not taxable.”

The attorney asked, “If a loan is forgiven, is it taxable?”

The banker agreed by saying, “Yes.”

The attorney asked, “Is it the bank policy to not return the actual cash value that they received from the alleged borrower unless it is returned as a loan from the bank to the alleged borrower?”

The banker replied “Yes”.

The attorney said, “You never pay taxes on the actual cash value you receive from the alleged borrower and keep as the bank’s property?”
“No. No tax is paid.”, said the crying banker.

The attorney asked, “When the lender receives the actual cash value from the alleged borrower, does the bank claim that it then owns it and that it is the property of the lender, without the bank loaning or risking one cent of legal tender or other depositors’ money?”

The banker said, “Yes.”

The attorney asked, “Are you telling me the bank policy is that the bank owns the promissory note (actual cash value) without loaning one cent of other depositors’ money or legal tender, that the alleged borrower is the one who provided the funds deposited to fund the bank loan check, and that the bank gets funds from the alleged borrower for free? Is the money then returned back to the same person as a loan which the alleged borrower repays when the bank never gave up any money to obtain the promissory note? Am I hearing this right? I give you the equivalent of $200,000, you return the funds back to me, and I have to repay you $200,000 plus interest? Do you think I am stupid?”

The banker, In a shaking voice the banker cried, saying, “All the banks are doing this. Congress allows this.”

The attorney quickly responded, “Does Congress allow the banks to breach written agreements, use false and misleading advertising, act without written permission, authorisation, and without the alleged borrower’s knowledge to transfer actual cash value from the alleged borrower to the bank and then return it back as a loan?”

The banker said, “But the borrower got a check and the house.”

The attorney said, “Is it true that the actual cash value that was used to fund the bank loan check came directly from the borrower and that the bank received the funds from the alleged borrower for free?”

The banker, “It is true”, said the banker.

The attorney asked, “Is it the bank’s policy to transfer actual cash value from the alleged borrower to the bank and then to keep the funds as the bank’s property, which they loan out as bank loans?”

The banker, showing a wince of regret that he had been caught, confessed, “Yes.”

The attorney asked, “Was it the bank’s intent to receive actual cash value from the borrower and return the value of the funds back to the borrower as a loan?”

The banker said, “Yes.” He knew he had to say yes because of the bank policy.

The attorney asked, “Do you believe that it was the borrower’s intent to fund his own bank loan check?”

The banker answered, “I was not there at the time and I cannot know what went through the borrower’s mind.”

The attorney asked, “If a lender loaned a borrower $10,000 and the borrower refused to repay the money, do you believe the lender is damaged?”

The banker thought. If he said no, it would imply that the borrower does not have to repay. If he said yes, it would imply that the borrower is damaged for the loan to the bank of which the bank never repaid. The banker answered, “If a loan is not repaid, the lender is damaged.”

The attorney asked, “Is it the bank policy to take actual cash value from the borrower, use it to fund the bank loan check, and never return the actual cash value to the borrower?”

The banker said, “The bank returns the funds.”

The attorney asked, “Was the actual cash value the bank received from the alleged borrower returned as a return of the money the bank took or was it returned as a bank loan to the borrower?”

The banker said, “As a loan.”

The attorney asked, “How did the bank get the borrower’s money for free?”

The banker said, “That is how it works.”

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izraual June 22, 2015 at 10:53 am

How many people would be pissed if they found the banks used your signature (identity theft) in securities sale scheme that paid the mortgage off to the original funder of the loan (the one hiddin from you)in full and then they and other 3rd party investors made 10x what they say you owe on the mortgage for themselves? All without your knowledge or consent. Now if your original note is gone how can you obtain after paying 30 years? Now imagine if they intentionally fixed the deal so you default, and they take the house before that happens and do it all over again to the next person.

So now the questions is do they still have your original wet ink signature note? Ask them to see it and see what happens.

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