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
Your mortgage is a stream of monthly payments, say 2k/month for the next 30 years (360 months). At the simplest level the bank sells the mortgage to someone else to make more lump some money today, and then the other person assumes the risk/hassle/annoyance/time of collecting the remaining (say) 359 payments. A bird in the hand is worth 359 payments in the bush.
Now, at a slightly more complicated level what is often happening is the mortgage will get packaged up with a bunch of other similar mortgages into a security (i.e. a tradeable agreement to service (say) 100 specific mortgages of similar risk) and this gets sold/traded. So your mortgage starts off just as Mortgage on Jack’s House at the bank, but then becomes mortgage 98 in a Mortgage Backed Security by a specialist company that buys mortgages from banks and packages them into MBS’s and sells them.
Then this MBS containing your house as mortgage 98 might be divided up into various risk levels and those can be sold/speculated on as well. For example, someone might pay to be the person that gets paid last in line (so if anyone fails, they start losing money, BUT if no one fails they bought 2% of the income stream for (say) 1%.
A bunch of other stuff can happen as well, but from your end what you want to realize is that your income stream represents value and risk and some people want the value now, others want it later. Some people are willing to take the risk of you going broke in 20 years, others aren’t. As people change they desire to make money now vs later and their risk they buy/sell mortgages.
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