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Started By
Message
Why does my primary home loan keep getting sold?
Posted on 7/27/19 at 7:01 am
Posted on 7/27/19 at 7:01 am
I have lived in the same house for 15 years.
We bought an affordable house and have never missed a payment. In the first 10 years, it was sold probably 3 times.
It just got sold again with very little principle left to be paid. I figured the amount still owed was so little that no company would buy it. We plan to pay it off in the next 5 years anyway.
How is my loan more valuable to a new mortgage company than to the current one?
We bought an affordable house and have never missed a payment. In the first 10 years, it was sold probably 3 times.
It just got sold again with very little principle left to be paid. I figured the amount still owed was so little that no company would buy it. We plan to pay it off in the next 5 years anyway.
How is my loan more valuable to a new mortgage company than to the current one?
9
Posted on 7/27/19 at 7:03 am to SECdragonmaster
I would assume it's part of a larger bundle. I doubt banks trade individual mortgages.
Posted on 7/27/19 at 7:05 am to SECdragonmaster
I have wondered this myself. We bought a new house recently, and before the first payment was due, the mortgage was sold
Posted on 7/27/19 at 7:06 am to SECdragonmaster
I worked for a loan servicing company as well as banks that offered mortgages.
Most banks don't service their loans. They'll sell them off to another company that will repackage them with other mortgages and sell them. Even then these companies that do service the loans will sell off performing mortgages. Why? Maybe a group of loans they have could be worth more to another investor or servicing the loans they have can be expensive and didn't want to lose money on it as a result. This is normal and happens all the time.
Most banks don't service their loans. They'll sell them off to another company that will repackage them with other mortgages and sell them. Even then these companies that do service the loans will sell off performing mortgages. Why? Maybe a group of loans they have could be worth more to another investor or servicing the loans they have can be expensive and didn't want to lose money on it as a result. This is normal and happens all the time.
This post was edited on 7/27/19 at 7:07 am
Posted on 7/27/19 at 7:09 am to Bestbank Tiger
quote:
I would assume it's part of a larger bundle. I doubt banks trade individual mortgages.
Yes, mortgages are grouped together and categorized in traunches. AAA loans are low risk but low rate of return while riskier A or B loans would have a better rate of return but are more likely to default.
This is partially how the mortgage crash happened over 10 years ago. Sometimes shite loans ended up in AAA bundles or sometimes AAA bundles should have been in lower traunches.
Posted on 7/27/19 at 7:10 am to Pechon
Also gives them liquidity to make more loans.
Posted on 7/27/19 at 7:36 am to Pechon
quote:
Yes, mortgages are grouped together and categorized in traunches. AAA loans are low risk but low rate of return while riskier A or B loans would have a better rate of return but are more likely to default. This is partially how the mortgage crash happened over 10 years ago. Sometimes shite loans ended up in AAA bundles or sometimes AAA bundles should have been in lower traunches.
It’s as if we haven’t learned a thing.
I have an insurance brokerage in Gulf Shores, and insurance prices along the coast jumped like 25% overnight last month. There is a couple buying over a 1/2 mil home in Orange Beach who called frantic yesterday because their initial quote through another agency went from like $1800/yr to $3500/yr. I got them down to $3100 for the same coverage, and she was like, “we can’t afford the home”.
I wanted to say, “if you can’t afford another $100/month, you shouldn’t be purchasing the home in the first place”. I didn’t, obviously, but I see this shite all the time. People are dumb with money, and mortgage people put people in homes they can’t afford on a regular basis.
Then, the mortgage is bundled and sold, and we are slipping back to our old ways.
Posted on 7/27/19 at 7:41 am to Bestbank Tiger
quote:Liquidity and profit taking.
Also gives them liquidity to make more loans.
If the OP remembers back to the original process, the interest rate was tied to the Fed Rate. Over the life of the mortgage those Fed Rates change making lenders change to stay profitable.
The lender borrowed money to loan out for a wee bit more than their cost. When rates change it may make sense for them to sell it someone who just borrowed more cheaply. So the loan servicer changes as one takes a dollar today rather than $1.25 over X years.
At the low rates these days, lending really is the old "if I had an extra penny from everyone" all adding up to a significant amount. So small rate changes can eat those single "penny from everyone" up and profit disappears.
Posted on 7/27/19 at 7:44 am to SECdragonmaster
You have a mortgage.
Posted on 7/27/19 at 7:46 am to SECdragonmaster
quote:
How is my loan more valuable to a new mortgage company than to the current one?
It’s not “more” valuable to your new lender, it’s just different.
Your current lender likely wants to free up capital for new loans, which yield a materially higher return on capital than your mature loan does. Conversely, your new lender is likely parking some capital in a very low risk pool of loans, which also have a shorter remaining life and quicker amortization (though lower yielding).
Posted on 7/27/19 at 7:56 am to Pechon
quote:I watched The Big Short too
Yes, mortgages are grouped together and categorized in traunches. AAA loans are low risk but low rate of return while riskier A or B loans would have a better rate of return but are more likely to default.
This is partially how the mortgage crash happened over 10 years ago. Sometimes shite loans ended up in AAA bundles or sometimes AAA bundles should have been in lower traunches.
Posted on 7/27/19 at 7:59 am to SECdragonmaster
as long as my principle isn't affected, i couldn't care less how many times they sell it.
Posted on 7/27/19 at 8:01 am to SECdragonmaster
It’s nothing personal - no reflection on you or your home. Servicing a mortgage is expensive - and your investor (Fannie Mae - FHA) will pay for it. It’s a cash-flow thing for the servicing company - as mentioned already.
PITA part is making sure you inform your insurance company when your mortgage company changes - the new servicer is supposed to do this, but often doesn’t. You don’t want something to happen to your home and you get a check from the insurance company made out to you and the old company. They won’t let it be cashed.
PITA part is making sure you inform your insurance company when your mortgage company changes - the new servicer is supposed to do this, but often doesn’t. You don’t want something to happen to your home and you get a check from the insurance company made out to you and the old company. They won’t let it be cashed.
Posted on 7/27/19 at 8:15 am to SECdragonmaster
I have already learned a great deal from this thread in less than 10 minutes.
Thank you.
Thank you.
Posted on 7/27/19 at 8:19 am to oldcharlie8
quote:What principle would that be?
as long as my principle isn't affected, i couldn't care less how many times they sell it.
Posted on 7/27/19 at 8:20 am to SECdragonmaster
Servicing of loans is a niche business...the servicing fee is normally .04-.05%....it is in essence a interest only investment for the servicer...in order to make money they must do it in very large portfolio of loans...as your loan principal decreases the returns diminish till it is a drag on returns...there are some servicers who specialize in small balance current payers (less risk) time spent
Posted on 7/27/19 at 8:24 am to BamaCoaster
quote:
yr. I got them down to $3100 for the same coverage, and she was like, “we can’t afford the home”.
I wanted to say, “if you can’t afford another $100/month, you shouldn’t be purchasing the home in the first place”
Meh. A very good reason that someone can afford a $500k beach house is they've been smart with their money over the years. An extra $100/ month may just be something they're willing to look elsewhere.
However, I will agree with your initial premise that people are trying to buy too much that they ultimately won't be able to afford.
Posted on 7/27/19 at 8:25 am to soccerfüt
quote:
What principle would that be?
the principal balance, PAL.
Posted on 7/27/19 at 8:26 am to oldcharlie8
Posted on 7/27/19 at 8:28 am to soccerfüt
Were you told in advance this was happening? Don’t have an answer why they are doing it just wondering if you were told in advance.
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