One common question I’ve gotten recently has been around mortgages.
“Why did my bank sell my mortgage? I want to find a bank that holds onto my loan.”
While this may be a big deal to someone who is shopping around to refinance, it’s rather insignificant so a high-level overview is all that’s required.
Recommendation: if you’re shopping for a mortgage loan or looking to refinance, I use LendingTree. They’ll match you with up to 5 lenders who will compete for your business so you can feel confident you’re getting the best deal.
There are a lot of capital requirements for banks. While this is great protection for depositors, it also limits the amount of loans a bank can have on it’s books.
Time Value of Money
I don’t care how many times you’ve been turned down for a loan, banks DO like lending money. One thing banks do not like, however, is waiting 30 years for you to repay them. It’s much easier for a bank to originate a mortgage, sell it for a quick commission, and then start the process all over again.
While a few smaller banks may keep your mortgage in their portfolio, the majority of mortgages are sold in the secondary market – mostly likely to Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). These pools of mortgages (mortgage-backed securities) are then sold to investors.
Without your knowledge or consent, mortgage-backed securities are sold all day long. It doesn’t affect you because you continue to make your payment to the same bank. A more rare occurrence, which should worry you, is if your mortgage servicer changes. This can be an annoyance. I’ve seen a number of cases where, in transition, a payment is misapplied or, even worse, lost completely.