Why Mortgage Service Companies Exist

Although some banks keep their loans that they originate, many other banks sell the mortgages to service companies. The service company takes over the loan process and handles all the payments. Selling a mortgage allows the banks to initiate new loans since banks have limitations as to how much they can lend, which can be based on a number of factors, including how much in deposits the bank is holding. Also, a bank might make more profit initiating new mortgages than servicing existing ones.

Mortgage loans are bought and sold through the secondary mortgage market—many of which are sold to Fannie Mae or the Federal National Mortgage Association (FNMA). Fannie Mae packages multiple existing mortgage loans as investments, which are called mortgage-backed securities (MBS). Individuals can invest in an MBS and earn a rate of return based on the mortgage interest rates in the investment.

If your mortgage is sold, you'll have a new service provider, which will notify you of their address to send payments. According to the Consumer Financial Protection Bureau or CFPB, the new lender or service company that bought your mortgage must "notify you within 30 days of the effective date of transfer. The notice will disclose the name, address, and telephone number of the new owner."