In the mortgage industry many lenders make loans using mortgages

What is the mortgage industry?

There is a long list of the types of lenders that make loans using a mortgage for security. They include government agencies, lending institutions (such as banks and mortgage bankers), credit unions, finance companies, mortgage brokers that arrange loans, insurance companies, and even individuals.

There are two types of lenders. The first type of lender is the primary lender, which is the type you will deal with. This may be a local bank or other financial institution that meets with you and originates your loan. After your transaction is completed, your primary lender can either keep the loan or sell it on the secondary market. If your lender keeps the loan, it is called a portfolio loan.

The second type of lender is one that buys loans made by primary or retail lenders, and does not deal directly with the public. Entities that buy existing loans in the secondary mortgage market may be pension funds, for example, or even primary lenders that have money but cannot originate enough loans. The largest buyers are government agencies or quasigovernment agencies - private companies originally created by Congress.

Why would a primary lender sell a loan?

Primary lenders make money on the fees you pay when the loan is made and on the interest they collect over the life of your loan. However, if you have a thirty-year loan, it will take the primary lender thirty years to make all its money. This ties up money the lender has available to make loans into one property and borrower for the life of the loan. If the primary lender sells the loan, it makes an immediate profit on its money - albeit less than if it had kept the loan for the full thirty years - and gives it money to continue making other loans.

A primary lender can also make money on servicing the loan it sells. This means that the primary lender still sends out your monthly statement and collects the money, but it then forwards it to the company that bought your loan. In other words, the primary lender acts as an administrator of sorts for a loan it sells, and then charges a fee for performing that service.

Will I know if my loan is sold?

You may or may not ever know whether your loan has been sold. If your primary lender is still servicing the loan, you will not know that it is actually being held by another company. If the buyer of your loan is servicing it or uses a different servicing agent, you will get a notice that your mortgage has been sold, and you should make future payments to the buyer or buyer's servicing agent.

Regardless of whether or not your loan is sold, the terms of your loan will not change, and you will not have to pay more money to the new company just because your loan has changed hands. It is not something that you need to worry about. People often think that their payments are going to increase or their interest rate will rise if their loan is sold, but that is simply not true.

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