Why do mortgage lenders sell their accounts as often?

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I bought my house on February 6 at Option One Mortgage Company. Less than four months, I received a message that they have been serving my loan transeferred Americas Service Company. Later I asked a number of other owners, and I did some research online and realize that it is very common. Why?

  1. Reply
    April 29, 2011 at 11:49 pm

    This is done for a number of reasons. Bad credit risks are taken off the books quickly. Other reasons would be they sell morgages so they can buy more morgages. It works like this: You get a 30 year morgage at 6 1/2% — the fed rases rates to 8 1/2 % — your morgage company sells the morgages Fanny Mae or Freddie Mac getting back the principle plus three years in interest. Then they take that money and give out more morgages at the new 8 1/2 % rate, thus making money on you and money on the new morgage.

  2. Reply
    April 29, 2011 at 11:55 pm

    Many mortgage companies are really more in the business of initiating the loan. They only have a limited amount of capital, so they sell the loans to other companies, who are more into mortgages as an investment. After the sale, the initiating company has the money to loan out to the next borrower.

  3. Reply
    Adam the Engineer
    April 30, 2011 at 12:01 am

    Money today is worth more than the same amount of money will be worth tomorrow.

    If a bank can liquidate some of its mortgages to another company and get the money out of them sooner, it can turn around and re-invest that money into a different venture that has a higher rate of return. This way they can maximize thier profits.

  4. Reply
    April 30, 2011 at 12:10 am

    Once your loan funded with Option One they sold the loan on the secondary market (investors or Fannie Mae, Freddie Mac etc.).

    When the loan is sold the origination company retains servicing rights. This means that who ever purchased the loan must pay Option One fee’s to manage your loan (mortgage payments, escrow etc.)

    These fee’s are very lucrative and Mortgage Companies commonly sell the servicing among each other. It is correct that the higher risk loans are unloaded but they are usually packaged with other loans in the deal.

    It is nothing personal about your specific loan. These loans move in bunches anywhere from a few hundred to 20,000 and more. I process these everyday, they are called Service Releases in the industry.

    The mortgage company that purchased the servicing on your loan did so because it is cheaper to purchase the servicing than to originate a new loan, sell it on the open market and retain the servicing on their own. It is a method to grow for mortgage companies that are not growing fast enough by originating mortgages.

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