Understanding the Secondary Mortgage Market

You've just been notified that your bank has recently sold your mortgage. Although unsettling, this is a very normal business transaction that will not affect your loan.

It's another day of junk mail, when all of a sudden, you see an envelope from your mortgage company. You're about to toss it, but open it just to see what they have to say. Your heart jumps into your throat and you can't breathe when you read that the company that gave you the money to buy your dream home has just sold your mortgage. What does that mean? Is it even legal? What happens next?

Take a deep breath--this is a perfectly normal scenario. Financial institutions can sell mortgages without your consent. This is legal and does not affect your mortgage in any way. The name on the envelope may change, but that's all. Not convinced? Confused? Let's start at the beginning.

Primary mortgage market

You originally applied for your mortgage from a bank, mortgage company, or credit union. This is called your primary market mortgage lender. If they think that you're a good risk, the lender will give you the money to buy the house. You, in turn, promise to pay it back under certain pre-defined conditions. After the closing, the primary lender may either hold on to your mortgage, or sell it in the secondary market.

Secondary mortgage market

There are companies who buy primary mortgages, package them into securities, and sell them to investors on Wall Street. This is called the secondary market, and is actually a good thing, because enough money is made on the secondary mortgage market to help keep your interest rates low. Once your mortgage is sold, the new lender keeps all the terms and conditions of your loan. The only difference you'll notice is that the address on the envelope containing your payment will change.

You'll receive a letter notifying you that your mortgage company has sold your home loan. After that, you'll get another letter from the company that has bought it. This new letter will identify them as the new lender, and inform you that the terms and conditions of your loan won't change. Instructions will also arrive explaining how to make your payments to the new company. If you have questions, or if your mortgage payment is imminently due, you could give them a call.

Mortgages are bought and sold by banks and financial institutions all the time, and actually helps stimulate the housing market, and keep interest rates down. Lenders are required by law to notify you of the transaction, but it will not affect your mortgage in any way except where the payment gets made. This is all perfectly normal and legal, and nothing for you to worry about…so start breathing again!