When you first work with your loan officer very early on in the process, you’ll soon establish a trusting relationship with that person. You’ve shopped around for a new loan and interviewed several loan officers before finally landing on the perfect choice. Your loan officer has helped qualify you and provide an array of loan programs that best meet your needs. You also work with your loan processor as your loan file moves through the approval process. You decide on not just the right loan program but also select your rate as your processor prepares your loan for a final approval. Once your approval is issued, papers are drawn and you attend your settlement. Papers are signed and returned to the mortgage company for a final review and once that review is completed your loan is funded.
Soon thereafter, you’ll receive payment information indicating where you need to make your payments. And for most funded loans, you’ll also receive another letter informing you the lender you originally worked with has just sold your loan to someone else. Someone you’ve never worked with before and even to a company you’ve never heard of. What happened to that relationship you formed with your loan officer? Where’s the loyalty?
Among the many initial documents you signed when you first applied was a Mortgage Servicing Disclosure. This form tells you what percentage of the lender’s loans are sold and more often than not the form indicates most if not all of the loans approved and funded by that particular mortgage company will be sold to someone else. But why? Why go through all the effort of originating, approving and funding a loan and forgo all the interest that new loan provides? Good question and an easy one to answer- if not for selling the loan, the lender would soon run out of money to lend.
Mortgage companies today work with a line of credit. It’s not as if the mortgage company approves a loan and then opens up a vault full of money to fund your mortgage. Instead, when it’s time to fund your loan the lender taps into the line of credit for the needed amount to fund the new mortgage. In order to replenish this line of credit the lender then sells the loan to a third party. Once the loan is sold, the lender now has more funds to make still more loans. Who is the loan sold to? Many times, it’s to other mortgage companies but ultimately the loan is sold either to Fannie Mae or Freddie Mac.
The marketplace for all this buying and selling is called the secondary market for mortgages. This secondary market is robust and active and keeps the mortgage market liquid. Without a secondary market, there would be fewer loans issued and still fewer choice. When your loan is sold it’s not because your original lender isn’t loyal to you or doesn’t appreciate your business…it’s to stay in business so the lender can make even more loans.