What benefit do banks get by selling/transferring your mortgage to a different institution?

Question

As long as I’ve owned a home, I’ve had a mortgage. The mortgage I generally have had is usually through whatever lender came through at the time of my home purchase, but isn’t necessarily one of my choosing – it hasn’t mattered much on the company though, because as long as the mortgage rate was what I agreed to, it didn’t matter to me. Within a year or so of buying the home and establishing the mortgage, it always seems that the initial lender “sells” off the mortgage to another institution or bank. When/if that happens, the new company assumes the same terms and my mortgage remains unchanged. Same thing when I have refinance the home – the refinance company comes in with a better rate (used to, at least) and within a short time frame, sells the mortgage off to another company. To make things even stranger, this has happened to me even with an established mortgage of several years with the same company/bank. I can’t fathom why/any benefit the banks get from doing this.

TL;DR: why do banks sell/transfer mortgages around if there is no change to your term? How does it benefit them?

In: 293

Answer 1

Having money to lend, and deciding who to lend money too are two difirent skill sets.

One lender is good a screening people, processing applications and doing the paperwork. This company creates the terms of the loan. But then there’s another company that has a lot of money to lend, but does not want to do all that “work”. So they just buy the loans off the first lender.

This benefits the first lender because they get to do the thing they are good at (paperwork) and send all the risk off to whoever purchases the loan. They get paid just for doing all the work and doing the initial issuance of the loan.

Once they sell your loan, they can use that money to make a loan for someone else (that they will again sell).

So if that first bank has $1,000,000 available to lend, they might lend it 10x by this process of lending, selling the loan, then lending again and selling again. Over and over and over again they issue loans, sell them and then issue more loans.