Mortgages often sold during life of loan

Published 10:17 pm Saturday, June 26, 2010

Question: I need help in understanding what is going on with my mortgage. We refinanced in October of 2002 with what I thought was an interest rate of 5.125 percent with Everett Mutual. They have sold out to Key Bank. Key Bank, I found out, does not handle mortgages. They sold my mortgage to an out-of-state company. My monthly payments started out just below $1,500 and now have climbed to almost $1,800, with my interest rate at 5.75 percent. It is a 15-year contract with a fixed rate. I may be mistaken about the interest rates; I cannot find all of my papers. Why do the monthly payments keep going up? And should I have had a say in who they sold my contract to?

Answer: I will deal with your last question first. It is very common for mortgages to be sold one or more times during the life of the loan. That’s because mortgages are packaged together into mortgage backed securities and bought and sold just like stocks and bonds.

Most banks and mortgage companies are in the origination part of the mortgage business. Their job is to process your loan application, get it approved through underwriting and then send it to escrow where you sign the closing documents.

Those documents are then reviewed by the funding department and your loan is either turned over to the bank’s servicing department where your monthly loan payments are collected and processed, or your loan is sold to Fannie Mae or Freddie Mac on the secondary market.

When your loan is purchased on the secondary market as part of a mortgage backed security, another bank’s servicing department may handle your payments. Or, the bank that originated the loan may keep the servicing part of the loan even though the loan itself is sold. That’s because the company handling the loan servicing earns a small processing fee on each loan. There are thousands of banks and mortgage companies in the state of Washington, but only a handful are big enough to have their own servicing department, so it’s likely that your loan servicing may be sold at some point in time. You don’t have any choice or control over this process because your loan servicing can be sold by the investor who owns your mortgage at any time.

But if your loan is sold to another servicing company, the terms will never change. If you have a fixed-rate mortgage, your interest rate will stay the same regardless of how many times your loan is sold because the rate is set on the promissory note that you signed at escrow. If you don’t have a copy of the papers you signed at the close of escrow, contact the escrow company where you signed and they should be able to provide you with copies of your loan documents.

Once you get a copy of your closing papers, look for the promissory note and check the interest rate and terms of the loan. It will show you the interest rate and whether you have a fixed-rate or adjustable rate mortgage.

Even if you have a fixed rate, your monthly loan payments will typically increase each year because you probably have an impound account that collects money to pay your property taxes and homeowner’s insurance in addition to your mortgage payment.

Taxes and insurance tend to increase each year, so you can expect your monthly impound amount to increase each year even though the amount applied to your actual mortgage loan remains the same.

Look closely at your monthly mortgage bill and you should see a breakdown of how much of your monthly payment is applied to the principal and interest of your mortgage loan and how much is applied to your impound account to pay your property taxes and homeowner’s insurance. If the numbers don’t seem to be correct, immediately call the phone number on your monthly mortgage statement and talk to the company servicing your loan.

Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail him at economy@heraldnet.com.