My Loan Was Sold Now What

The way the finance industry works is like this. A lender will lend money to a business. The loan will be categorized as a mortgage, a second mortgage, line of credit, operating line of credit, receivables financing or something like that. My Loan Was Sold

Once a bank or lender has a lot of loans of the same type they will; package all the loans together and sell them. The reason banks sell loans is because they are in the business of lending money. Banks are connected with businesses on a local level and have relationships with business to lend them money. Banks can sell the loans to an investment house who is only interested in receiving the interest on the loans.

After your loan was sold, the only effect that you the borrower should feel is the new address to send the monthly payments too.

There are other reasons a loan will get sold.

Loans are constantly being graded by banks for their level of risk. When a loan changes from a preforming loan to a non performing loan, the level of risk for the bank changes. A loan becomes no performing when the borrower misses a payment or is late on a payment. Another reason a loan can become no performing is if the borrower / business has a change and it causes the bank to be concerned about the businesses ability to repay the loan.

For example: a business can have certain requirements that must be met for the interest rate on the loan to stay the same. A hotel may be requires to have a minimum occupancy rate, an apartment can be required to maintain a minimum vacancy rate. These are all part of the fine print of the original loan documents. If the occupancy or vacancy rate changes, this can trigger a flag at the bank and put the loan in technical default.

For troubled loans, a sale of the loan is not always good.

When the troubled loan is sold, many times the next thing to happen is a notice of technical default and a foreclosure notice. Since banks do not like having troubled loans on their balance sheet, they will sell the troubled loan and let the new lender process the foreclosure.

During the financial crisis of 2008, many banks where forced to sell loans that where not 100% performing because the Federal Reserve required the banks to maintain a certain level of cash as security against the loans that they made. The banks had difficulty raising cash and needed to quickly unload the “troubled loans”.

So when a loan is sold, the question is, Why your loan was sold? Are the borrower and lender no long friends, or is the bank just doing the normal next step in the loan cycle.

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