Loans being sold happens every day in America and almost as quick as the docs are signed at the title company. According to Mark Thaler, with America’s Choice Home Loans (ACHLonline.com), the time it takes to sell a loan varies between investors but usually happens before the first payment is made. If it takes longer then the payment will be made to the originating company the first time and then the sale will go through. Your loan will probably be sold multiple times before you are done paying it off.
There are several major players that purchase loans from originators. This is called the secondary market and consists of private investors, banks and the infamous Fannie Mae (The Federal National Mortgage Association), Ginnie Mae (The Government National Mortgage Association) and Freddie Mac ( The Federal Home Loan Mortgage Corporation.. Fannie Mae and Freddie Mac are government-sponsored entities while Ginnie Mae is still a government entity. In fact, Ginnie Mae’s securities are the only ones that are back by the full faith and credit of the United States government. I could go on and on about what these organizations do but Wikipedia has several great articles on each and that isn’t the focus of this entry.
Suffice it to say that, there are a lot of players in the secondary market that can purchase your loan once it is originated. The good news is that if you have a fixed rate mortgage, no matter who buys it, your rate can not be increased by the entity that purchases your mortgage. If you have an Adjustable Rate Mortgage then the rates that you agreed to when you signed on the dotted lines are the rates that your new mortgage owner must abide by. To make things even more complicated, the entity that buys your mortgage may contract out the servicing of your mortgage to a third-party company. That means that you will deal with a third-party provider for all of your billing rather than with the company that owns your loan. Lost yet?
The good news is that most of this is transparent and you won’t know it even happens until you see a different name on your billing statements. Just be glad that you were able to get, and maintain your payments on, that mortgage that you despise so much because there are a quickly number of Americans who can’t.
As usual, please feel free to comment or leave questions.