What Is an Assignable Mortgage?
Mortgages are assigned when they switch lenders. There is an entire secondary market of mortgages, especially in areas like the United States where many different types of mortgages are common and many lenders may compete over them. There are several reasons that lenders may switch the loan over to another organization, but it tends to be legal unless otherwise indicated, and is a very common practice.
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Assignable Mortgage
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Assignable mortgages are those that the lender can sell to another lender who was not originally in charge of the loan. This does not mean that the mortgage has been sold, only that it can be, and should not be confused with assumable mortgages that allow a switch in borrowers instead of lenders. The terms of the loan do not change when it is sold.
Requirements
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There are usually several requirements for assignable mortgages. They cannot be used as collateral for other financial matters, and they cannot be privately held (only major lenders trade loans). Typically the borrowers must also have remained the same throughout the life of the mortgage in order for it to be assignable. Some mortgages are not assignable because of legislation or special contracts.
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Reasons
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Mortgage brokers and similar lenders try to sell mortgages to realize an immediate profit on loans. If the lender holds onto the loan, he only receives payments as the borrower makes them, and there is always a danger the borrower may default. Also, loan rates could go up in the future, costing the lender money it could make by lending out present money. Selling the loan allows the lender to loan out money at a better interest rate in these cases.
Benefits
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In a market where there are many assignable mortgages, lenders tend to feel more comfortable managing and make loans to homebuyers, because some of the risks are more easily dealt with. As a result, they offer better deals on interest rates. A thriving secondary mortgage market is one sign of a good economy.
Considerations
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Assignable mortgages often add layers of complications to mortgages, which can make it difficult for borrowers to seek debt consolidation or reconciliation if problems develop. The lender often retains loan services while selling the amount of the mortgage itself to other lenders, creating a complex network of ownership. Frequent mortgage market activity may also be a sign of rising interest rates.
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References
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