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?
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I work at a bank. Lots of wrong answers in here.
A bank does not need to have the “cash on hand” to make a loan The entire fractional banking and Federal Reserve system exists to provide liquidity in the bank system wherever it is needed. They are not selling a mortgage to get the money to make another mortgage. Banks do not work like your household budget that way, they are part of a federal reserve banking system.
Banks sell mortgages as part of their risk mitigation strategy. That’s it. Mortgages are loans like any other loan and all loans carry risk. There are a bunch of really smart quant’s and financial analysts that work in Risk (2 floors above me at the moment) and run models all day long simulating market conditions, forecasts, acceptable risk levels, etc etc and if they see a flag show up on their models, they move to de-risk their assigned portfolio, which includes moving some assets off the books and selling them. I work in credit card design, origination and marketing and am very, very familiar with the information we need to provide Risk before anything we want to do is approved.
Go watch the movie Margin Call. The entire movie is basically about this happening during the mortgage crisis, a financial institution owning to many risky assets and having to dump them to other banks to de-risk their portfolio or risk bankruptcy. And it’s a pretty entertaining movie too.
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