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
I lend you $100 in return for you paying me back $1.05 per day over 100 days. After 100 days, I’ve profited $5 and you are debt free. This took 100 days.
Alternatively, I lend you $100 in return for you paying me back $1.05 per day over 100 days. After 10 days, I’ve profited $0.5 but I sell the loan to Bob for $0.1
I’ve profited $0.6 over 10 days, Bob profits $4.4 over the next 90
It’s essentially just a trade between short term and long term interests.
The complexity in reality is typically around loans being sold/bought where the person borrowing isn’t amazing at paying back their loan. So the bank can sell the loan at a significantly discounted value to a debt collection business with very aggressive collection behaviors.
Imagine buying a $450,000 mortgage from a traditional bank for *significantly* less than $450,000 because the bank deems the borrower unlikely to pay it back, and the bank will start losing money fast as they themselves likely are paying interest on loans to in turn provide to the borrower. Let’s say the borrower now owes you $450,000 for a loan that you bought for $100,000 and all you have to do, is spend less than $349,999 to claw back the debt to make a profit, *or* find someone willing to buy the debt, again, for more than $100,000
You do versions of this long enough and with republican oversight, you get the 2008 subprime mortgage meltdown. But a few people made *a lot* of money.
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