Reasons Why Mortgage Companies Sell to Other Banks

Some people get startled when they receive notice that they are no longer going to be paying their amortizations to the lending company that they owe money from, instead they are now going to be paying their amortizations to a different bank altogether. Although they do not need to pay extra, it can still be a stressful time for the homeowner not knowing who they owe the money to.


When a mortgage closes, the lender will bundle other mortgages similar to your own and sell them to a secondary market. These are the larger lenders or companies who will take over the servicing of the loan. These secondary lenders are Fannie Mae or the Federal National Mortgage Association and Freddie Mac or the Federal Home Loan and Mortgage Corporation. Some other companies may be insurance companies, dealers in securities and other private financing companies.


The reason why the mortgage companies do this is to protect themselves. They sell the mortgages for a price which will help them get back their own money they loaned out to you. This way they can offer loans to other applicants with the money they had received from the bigger mortgage companies.


This is the usual practice among smaller financing companies, lending companies and banks. They do not have the huge capital to maintain their services if they do not sell off the mortgages. Unfortunately, this will also cause some form of distrust from the client who feel that they had borrowed money from an institution that they believed could help them and may feel like they were forced to deal with another whom they have no knowledge of or idea how they work.


Fortunately the law is on the side of the borrower. The new mortgage holder will not have the right to increase the rates or the amortizations that had been signed between you and the original lender. Neither can they demand an earlier maturity date.