At some point, homeowners might very well receive a letter in the mail from their lender letting them know their loan has just been sold. This letter surprises most homeowners but it really shouldn’t. When you first applied for your VA mortgage then again at the closing table, you were faced with a stack of disclosures. These disclosures are required by regulators to have lenders provide these documents that specifically point out various aspects of the sometimes confusing loan process. Some carry more weight than others but they need to be signed or at least initialed nonetheless. One of these forms is called the Loan Servicing Disclosure and tells you whether or not your new lender sells loans and if so, what percentage of the loans they issue are sold.
But when your loan is sold, what happens? Nothing, really. Other than you’ll soon send your payments to another company. During this transition period, 60 days to be exact, if there are any payments mistakenly sent to the old lender that might be late, the late payment won’t be counted because of the switch. The important point about selling loans isn’t as much where you mail your check each month but keeping VA lenders liquid. Loan servicing rights can also be bought and sold. Loan servicers are the ones that collect the monthly payments, monitor payments and pay taxes and insurance from escrow or impound accounts. It’s common that your lender and servicer are two different entities. Why is this important?
Think about that for a moment. If a lender has $1 million dollars specifically reserved to issue VA loans, if that lender funded 10 new $100,000 loans, there’s no more money left to lend. To remedy that cash flow problem, lenders can buy and sell loans to one another freely. With VA loans, the Government National Mortgage Association, or Ginnie Mae, establishes guidelines lenders follow. When a lender buys a VA loan from another lender, it’s assured the loan meets VA guidelines. In effect, making VA loans and conventional mortgages somewhat of a commodity.
Freeing up cash helps keep rates lower and credit available. Without having the ability to sell loans, lenders would have to close their doors. Having your loan sold is actually a good thing. Maybe a hassle at first, but it’s a boon for the mortgage marketplace.