I’ve been paying Compay X for almost 5 years now, and was recently notified that my mortgage will now be “serviced” by Wells Fargo instead. I realize that there will be no change in the terms and conditions – I still owe the same amount, same rate, same length of loan. This happened once before, with a previous home.
I’m not worried about the loan, unless someone knows something about Wells Fargo that I don’t. Except: Wells Fargo? I thought they made stage wagons!
I’m just wondering, why did Company X sell the loan? Why did Wells Fargo buy it?
What factors led to this happening?
Like just about everything else, debt is a hot commodity. Your bank may have sold your loan for a number of reasons:
They needed some fast cash,
They’re going out of business and needed to liquidate all their assets,
They’ve decided to get out of the home loan business and focus on other investments,
etc.
In any case, it’s very likely that your bank sold a whole bunch of loans to Wells Fargo for a discounted rate. In other words, they sold the loans for less money than they would have earned, because they wanted a lot of money now. Wells Fargo will make a profit over time if they hold on to the loans until they’re fully repaid.
Another possibility is that your loan was not sold at all, but Wells Fargo simply acquired your original bank.
It does not mean that your bank needed the money, just that they saw it advantagious to sell it. It is strictly a business transaction using a asset they have (the loan). Nothing personal I’m sure. Though I would like an option of a loan that can’t be sold.
Wells Fargo started as a delivery service, mainly in the early western US. The USPS was not established there, and Wells Fargo was basically know as the post office of the west and continued to do better even when the USPS came to CA.
Been there. I had a mortgage with Transamerica. The guy told us “We will never sell your mortgage.”
He was true to his word. They didn’t sell my mortgage, they sold the entire mortgage division to Household Finance. Who was then acquired by Beneficial.
Thanks for the information. It makes sense now. My bank needed cash for whatever reason. They sacrificed some of the profit they would have made. I suppose they get to write off the loss.
Wells Fargo bought it for less than the interest I pay, so they make the profit.
One last question. The paperwork from both of the institutions is clear that they transferred “the **servicing ** of your loan.” I think this is just legaleze, but who now owns the loan?
It might be something slightly different than what is described above. Banks do sell loans as described, but banks also get into and out of the servicing business. For example, some banks write loans (essentially, they sell the product of money to borrow). They may be very good at that, but don’t consider it their core business to receive the monthly payments, track them to the account, and do collections when necessary. They may find another financial institution will do that for less than it would cost them to do it themselves. Our mortgage was sold almost immediately after we got our house for that reason.
If both institutions make money on this transaction, it makes me wonder if I’m paying too much interest. My rate is 5.875%, and I thought that was pretty reasonable.
In my scenario, this is what is happening. The first company is making money, otherwise they wouldn’t have made the loan, right? They had factored certain collection costs into their profitability calculation. Now, they’ve found a way to cut those collection costs, either to gain more profit, stay within budget, or minimize loss. No, they aren’t going to pass that savings along to you.
For what it’s worth, when I got my home mortgage a couple years ago, I was outright told “We will probably be selling your mortgage. Don’t worry and don’t be offended, it has nothing to do with you. It’s highly unusual for a single company to hold onto the mortgage for its entire life.”
About a month and a half into the mortgage (not even long enough to establish a payment history or anything), they sold it to CitiMortgage for no real reason I could determine though I’m sure they had their motives.
When a mortgage company sells the servicing rights to your mortgage, that’s a polite way of saying, we sold the mortgage itself (the right to receive payment) to somebody else. At least that’s what it means most of the time. So Wells now holds your mortgage note, and has been recorded as a transferee on the mortgage. If you were to default, Wells would foreclose on the mortgage unless it could force Company X to repurchase the loan under the terms of the contract by which the loan was purchased. Well should show up as a creditor on your credit report.
When a company sells servicing rights, it gets a premium based on the balance. It might get 103, for instance, which means that it gets the current principal balance plus three percent.
The probable cause of a transfer of servicing rights after five years, assuming Company X was not acquired by Wells, is that Company X needed to change its portfolio for some reason. Maybe it had too much mortgage debt in the portfolio, or maybe it just had too much of a certain kind. At any rate, someone decided that the premium was worth more to Company X than the stream of payments and the associated risk of default. Hence, you got a new servicer for your loan.
They were probably not a portfolio lender. Most mortgage bankers are in the business of originating mortgages in order to sell them to wholesale lenders. The mortgage banker earns whatever points and origination fees it can get up front form you plus whatever premium it is paid for the sale of the mortgage (this is called back end compensation).
Understand that they didn’t sell “your mortgage”. They sold a package of 10,000 mortages, or 50,000 mortgages, of which yours just happened to be one. They may have bought a few thousand mortages from somebody else that same day.
Banks now trade mortages the way investors trade stocks. They practice buy-and-hold more than grab-and-flip, but only over a timespan of a few years at most.
Often mortages are sold to a non-bank investor, who then contracts with a bank, or bank-like entity to “service” the mortage, ie to handle the payment processing & customer service.
If you have enough $, you too could buy a batch of mortgages instead of buying corporate bonds or T-Bills. It’s simply traded like any other debt instrument and generally, in bulk, considred fairly safe debt.
