First, there is the company that originates your loan, which may be a bank that has thousands of branches or a specialty company that you’ve never heard of. Then that originator may sell your mortgage into a securitized bundle that an investor can purchase. Finally, a third party may turn up on the scene — a servicer — that will actually collect your monthly payments.
It didn’t always work this way, but back when lenders kept more loans on their books they also assumed more risk. If they offered mortgages with interest rates that did not change but had to pay different interest rates over time to depositors, there could be a money-losing mismatch. Better, then, to sell mortgages to investors who actually wanted to collect checks based on a fixed rate of interest over a long period of time. Plus, the lender could take the money from the sale and originate more mortgages.
Those investors, as the eventual owners of the loan, turn out to have a lot of power here, even if you never interact with them as a borrower. And they care a lot about which company is servicing the mortgages they own — so much so that they may pay more or less for a basket of mortgage loans depending on whether a particular servicer is collecting the payments each month.
Given that, they are not so keen on people like me showing up and demanding permission to shop for a different servicer, which is why the Wells Fargo phone representative I spoke to this week told me that I was out of luck. Tom Goyda, a Wells Fargo spokesman, confirmed this. He also told me that the bank had in fact never sold my loan. Even so, in the world of mortgages there is no practical way for ownership (or simply servicing rights) to be sold or transferred on a one-off basis.
But just because we can’t do it to them doesn’t mean they can’t do it to us. Servicers get tired of baskets of loans all the time for any number of reasons. At that point, they sell off the rights to collect payments. So it’s entirely possible that the servicer on my mortgage will indeed change. I just won’t get to have any say in it.
Could the industry give borrowers more power? Sure, but experts contend that we wouldn’t actually like it if they did. “The standardization of all of this is what allows rates to be low,” said Sam Mischner, chief sales officer and head of mortgage for the online mortgage site LendingTree. “The more complexity you put into the system, the more the cost gets passed on.”
So how much more would it cost to let people like me take a walk? Because servicers make money collecting mortgage payments, they’d want something in exchange for losing the business — or merely for the possibility that it might happen frequently. Bob Walters, president and chief operating officer of Quicken Loans, estimated that mortgage rates might be as much as a quarter of a percentage point higher as a result.
At which point he tried to sell me a mortgage, since that’s his job. Indeed, the easiest way out of my relationship with Wells Fargo is through refinancing. But the best deal Mr. Walters’s salesman could offer was a loan that cost $300 per month more (albeit while ending in 20 years instead of our current 23-year countdown) and required $6,200 in closing costs.
This was not good news, since I had already promised my wife that we would not make a change unless it cost us nothing. (Even given that theoretical possibility, she had reservations. “This is the definition of a lovable quality of yours that also makes me crazy,” she said. “It’s your desire to enlist in projects that we do not have time and bandwidth for, however noble, and your willingness to inflict pain on ourselves in order to inflict pain on some corporation that doesn’t care.”)
You, however, may fare better on refinance pricing depending on your current mortgage loan. If so, keep in mind that whoever originates your next mortgage could turn back around and sell the servicing rights, which means that even if you shed Wells Fargo in a refinance, it could end up back in your life each month once more. “You can talk to the lender and get a sense of whether they intend to retain the servicing,” said Michael Fratantoni, chief economist of the Mortgage Bankers Association. “They will tell you that.”
Wells Fargo’s Mr. Goyda, in an honorable gesture, offered to warn me away (if I did refinance) from lenders who might sell off the loan in a way that would cause me to end up with Wells again as my servicer. He also pointed to its website for examples of the bank’s efforts to earn back trust. (As I’ve written in the past, I’d settle for Wells Fargo offering world-beating rates, rewards, products and services to prove that it is serious about winning over customers.)
At any rate, the numbers don’t add up for my household, so we will stick with Wells Fargo for now. It isn’t worth $6,200 and a hike in monthly payments to prove a point, even if we would pay off the loan three years early. And while I believe that consumer lock-in like this does help keep mortgage rates down, there ought to be some kind of morals clause in the loan contract. So if your servicer, say, fakes more than one million account openings, you can force it to pay closing costs on a refinance with a different company. I’d love to send Wells Fargo a $6,200 bill from a competitor.
It was Wells that inspired my pique, but it is not alone in the frustrating way it holds on to customers. When students borrow money from the federal government, they generally get whomever they get on the servicing front. Your employer picks your 401(k) or 403(b) administrator, and you may get stuck with high fees and lousy investment choices. And let’s not forget about Equifax and the other credit bureaus. Nobody asked to have personal data collected and exposed, let alone for the hassles that resulted from the big breach in that industry.
But this is just how things are, right? You can cut the cable cord with ease and choose mobile phone plans that don’t lock you in for long, if at all. But when it comes to six-figure matters like your retirement and your home loan, making an escape will be costly at best and potentially impossible.
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