Why Loans Get Sold

Ben Chenault
Oct 7 · 3 min read

So your mortgage was sold? Relax — it’s a very common occurrence and doesn’t mean the previous company thought it was a bad loan. The primary reason that servicing companies sell loans is to boost their liquidity. It has nothing to do with the loan being “good,” “bad,” or anything else.

A mortgage loan has two parts.

On any mortgage loan, there are two parts. The first part is the owner of that loan, who is receiving principal and interest returns on the money. The second part is the servicing side. A loan servicer is someone that — for a fee — receives the payments from the borrower and distributes those payments properly to the loan owner.

Sometimes the mortgage servicer is also the mortgage lender.

Loan owners

Most of the owners of loans are people like John Q. Public who owns them as part of their 401K. Other owners are life insurance companies, Fannie Mae, Freddie Mac, and similar institutions that purchase mortgage-backed securities (MBS) for investment purposes.

Loan servicers

The servicers of those loans are the big names that you write your payment check to. Most of the time when you’re writing your check to one institution, they do not actually own that loan; it is owned by someone else.

Mortgages are assets.

To a lender or a servicer, a mortgage is simply a financial asset. And when it’s put together with other mortgages and sold, it’s a way to build capital. Mortgage servicing rights are usually sold in large multiples — hundreds of millions of dollars of loans at one time. Lenders and servicers do this because they can get the present value of that income stream today instead of over a 30-year period — if they’re looking at 30-year mortgage pools.

That’s how servicers increase their liquidity, and that’s the reason loans are sold.

If you have questions about loans, the loan process, or anything else to do with home financing, hit us up. You can call 205–986–4220, connect with us on social media, or ping our website. We are happy to help you in any way we can.

— Ben Chenault,
Certified Mortgage Planner
NMLS# 130305
MortgageBanc / Fairway Nmls# 2289

Copyright©2019 Fairway Independent Mortgage Corporation doing business as MortgageBanc. NMLS#2289.4750 S. Biltmore Lane, Madison, WI 53718, 1–866–912–4800. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Business Oversight under the California Finance Lenders Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License. Georgia Residential Mortgage Licensee #21158. Licensed Nevada Mortgage Lender.

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