What Happens When a Mortgage is Sold?

By Justin Hooker, Loan Officer

Some homeowners may be caught by surprise when they receive notification that their mortgage has been sold only a short period of time after they closed. In most situations, this refers to a transfer of servicing rights, meaning the lender that originated the loan will no longer be collecting the payments. This is totally legal and in fact, it’s quite a common practice for lenders. The financial obligation does not change and loan terms remain the same as outlined on the original mortgage note. Once sold, the loan may appear under a different name on a credit report, but this will have no impact on the individual’s credit score.

What to Expect

Typically a borrower will receive two notices regarding the transfer of servicing. One will come from the current servicer and another from the new servicer. The transfer notice will state vital information to ensure payments continue to be made. This includes:

  • The name and address of the new servicer
  • The date the current servicer will stop accepting your mortgage payments
  • The date the new servicer will begin accepting your mortgage payments
  • Telephone numbers (either toll-free or collect) for the current and new mortgage servicer, for information about the transfer
  • Whether you can continue any optional insurance, such as credit life or disability insurance; what action you must take to maintain coverage; and whether the insurance terms will change
  • A statement that the transfer will not affect any terms or conditions of your mortgage, except those directly related to the servicing of the loan. For example, if your contract says you were allowed to pay property taxes and insurance premiums on your own, the new servicer cannot demand that you establish an escrow account.
  • A statement explaining your rights and what to do if you have a question or complaint about the servicing of your loan.

Once transferred, any type of auto-payment would need to be set up again as well as any payments made through a financial institution’s bill-pay system. For the consumer’s protection, there is a 60-day grace period after the transfer. During this time a borrower cannot be charged a late fee if they mistakenly send a mortgage payment to the old servicer.

Remember, receiving a notice that your mortgage has been sold should not be taken personally.

As long as you have been notified in a timely manner, your new servicer accurately lists your information, and you send in payments to the right address, you have nothing to worry about.