Have you been surprised to find out that your loan was "sold" to some other lender after you closed?
This happens often and for some of you, many times on the same loan! Did you panic? For 99.99% of those transactions, it is not a real big issue. I will attempt to simplify it and explain:
Virtually all mortgages get 'sold' back and forth between lenders and off Wall Street. When you get a mortgage and it closes, the lender that 'originated' your loan often is not equipped to 'service' the loan... or collect payments every month. When you make payments, most borrowers think the lender is making all that interest. They are not. Mortgage loans are 'bundled' together in blocks, most often in the millions. Those bundles are bought and sold on Wall Street as mortgage backed securities (bonds).
The interest rate spread (profit) is most typically less than 1% and in fact in greater than half of them, it is less than 1/2 of 1%! So and lender would have to have a whole lot of mortgages to be profitable at just 1/2 of 1% profit... right?! But over the term of the loan
(5-10 years before most loans are paid off, refinanced etc) IF that loan is bundled up with a few million dollars of other loans, that can be profitable.
Very few banks or mortgage lenders can afford to have all that money tied up for that long for such little profit. They need the money back to re-lend over and over again. Thus the loan being sold.
Later this week we will go into further details about the subject of selling your loan and how valuable that can be to the lenders and if you know this, how you can use it to save you money! Stay tuned...
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