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I am house hunting and I'd like to understand something. I am currently running into a scenario where I just simply don't understand it at all. Here is a little background story:

I am looking at a new-build house and they are giving a $5k credit on closing costs if you go through a particular lender for the mortgage. So I start talking to a rep at this "lender".

This company isn't going to "service" the mortgage. The way she explained it to me, upon closing on the house, her company will pay for the house cost and then subsequently pass off the mortgage to an actual bank to "service" the mortgage. So in other words, she works for CompanyA. She is saying I go through them, and then upon closing CompanyA will pay the house's cost, and they will then in a very short time pass the mortgage on to a bank (Wells Fargo, BB&T, etc.) to service the loan for the mortgage duration.

I simply don't understand why they would do this, or what I would benefit from this at all (besides the savings on the closing costs). If CompanyA gives my mortgage to BankA to service for the next X years, why wouldn't I just go to BankA initially? What does CompanyA benefit from?

She said it was the different between a "mortgage banker" (CompanyA) and a "mortgage servicer" (BankA). She said that her company, upon "locking" down the interest rate will then redeem that "locked" interest rate based off of their daily preference.

That scares me for a few reasons:

  1. I have no idea which bank I will be working with for the mortgage duration
  2. I feel like this is a "middle man", and I don't see how I will benefit
  3. I don't know how this could affect me negatively
  4. Why doesn't everybody do this if it is so beneficial?

Can anybody answer these questions? My research isn't showing a lot of information, and I don't want to feel like I'm getting "worked over" by going through CompanyA to get to a random bank, vs. going directly to a bank to handle the mortgage.

Please, if you need any more information I'd be happy to supply it. And I apologize in advance for my ignorance on the topic.

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I've gotten several mortgages and they are frequently sold. It has become pretty rare for the person that sells a mortgage to keep it on the books and service the mortgage.

The record I've had is 3 mortgage companies owning my mortgage all before my first payment.

There is no real benefit for you if your mortgage is sold or transferred. The new bank/mortgage owner is required to follow all of the contractual terms from your initial contract. Sometimes the new bank has easier statements or easier online servicing and sometimes it doesn't.

Another common occurrence is that your mortgage is sold several times by small companies until a large bank (Wells Fargo, Chase, etc.) buys up the mortgage and holds on to it.

The reason this happens is that there are two (drastic over-simplification) ways for a company to make money "selling" mortgages.

  1. Sell the mortgage and get a kick back at the time of the "sale" when the mortgage is created.
  2. Service the mortgage, process payments, make a little money off of each payment.

The companies that excel at #1 (local mortgage brokers) are often not the same companies that excel at #2 (large banks). When refinancing, I've found that mortgage brokers are more capable at finding better rates than large banks. That's not always true.

This doesn't sound wildly unusual or something to be concerned about. If the builder's mortgage broker has a good rate (and closing costs, etc), I'd go with them. If someone else has a better rate, closing costs, etc I'd probably go with them.

  • Great information, thank you and +1. So what is more common/prudent? To go through one of these mortgage bankers to randomly choose a big bank to service the mortgage, or to go directly to the big bank to start and service the mortgage? Am I unwarranted in my fear to get a "random bank" to service my mortgage? – Thomas Stringer Sep 13 '14 at 0:45
  • I have gone with a "random bank" several times. In less than a year each time I've ended up with Chase twice, Wells Fargo once, and am now with Citi Mortgage. I go with the broker because, in my experience, I called both big banks and called a broker and the broker was able to get me better rates with lower closing costs each time I did a refinance. – Alex B Sep 13 '14 at 0:49
  • Talk to small local banks, and credit unions if you qualify for membership, too. They're often hungry for good loan customers and may offer something interesting. And they are more likely (though still unlikely, these days) to actually service their own loans. – keshlam Sep 13 '14 at 4:13
  • I'm just curious how the mortgage broker is able to get a better rate at the same bank than you are. Is the bank giving him a wholesale rate only available to brokers? Is he just better at negotiating the rate? Does he simply know which secret buttons to press to get the better rate? – Michael Jan 5 '16 at 22:41

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