Written by Isaac F. Davis

Many VA borrowers will notice that shortly after getting a VA loan, the name of the mortgage company on their bill will change.  A common practice in the mortgage industry is for one company to originate and fund the loan and then another company will service the loan.  Lots of lending companies are not in the business to service loans and sell their loans to other companies that do.  Companies that sell mortgages use recovered capital made during the sale to fund new mortgages.

Mortgage servicing companies (the companies that buy these loans) make their money by receiving monthly mortgage payments. These companies also manage escrow accounts and notify borrowers of late payments and delinquencies if necessary. Mortgage servicing companies also handle foreclosures when they occur.

In reality, only 20 percent of all mortgages remain with their original lenders to be serviced.  This includes VA loans.  VA borrowers shouldn’t be concerned if their loan gets sold. The terms of a VA loan that is sold remain the same. 

A mortgage transfer should never be a surprise to a borrower. Whenever a mortgage company plans to sell a loan, a document regarding the potential sale of the loan is required at closing.   

If the sale doesn’t happen right away, it is probable that the loan will be sold and serviced by another company some time later during the life of the loan. If and when this happens, VA borrowers should verify that their escrow payments are still accumulating with their new servicing company.  If a mortgage is being transferred around the time the insurance and real estate taxes are to be paid out of escrow, a borrower should verify with the new servicing company that these will be paid on time.  

Lenders are allowed to sell a mortgage for the loan amount plus a fee known as a service release premium. Mortgage companies that sell loans renew their capital when they sell, and thus can create new loans immediately rather than waiting fifteen or thirty years until the loan paid back.  This practice of continually creating new business by selling mortgages helps keep mortgage rates low.

Understanding that there are two parts to a mortgage can be helpful to a VA borrower. The two parts of a mortgage are the loan itself and the servicing of the loan. The two can be sold together or they can be sold separately.

When a mortgage is transferred to another company, a borrower will receive written notice from both the old and the new company. Transfer of a mortgage will not affect the rate or principal of the loan.  Monthly payment amount, payment date, and any other terms of the loan will be the same as before.

The new mortgage servicing company is not allowed to report any late payments for 60 days following the transfer of a mortgage. This protects the borrower should there be any miscommunication of the loan transfer and payments are sent to the wrong address.  This rule does not relieve borrowers of making payments, but sending payments to the previous servicer does happen.

In summary, getting a VA mortgage from a VA-approved mortgage lender means that the lender has the right to sell or transfer the loan as they so choose. Of course, none of the original terms of the mortgage loan can change. Borrowers should receive a servicing disclosure form at closing time that explains the lender’s guidelines on selling and transferring mortgages.  The disclosure is federally mandated and should also contain the three-year average for that company’s mortgage-selling practices.

Knowing the facts can assure that borrowers stay one step ahead in their financing affairs regardless of whether your VA loan is sold.  For more information on VA loans and VA home loan transfers contact a Loan Professional.