Loan Servicing Transfer vs. Refinancing

From the Arizona Mortgage Guru mailbag:

Question: Well, we just received a notice that IndyMac, who we have a second mortgage with, closed it’s doors. They kindly sent us a notice that they are working with Wells Fargo to offer help refinancing our loan. My concern is this, if we have to go through a “regular” refinance, there is no way we would qualify with our credit being in the dumps. It’s obvious they aren’t transferring our loan to Wells Fargo, but just offering help to refinance. So I’m concerned. I don’t see how they can do that. When calling the Wells Fargo number they provided, I couldn’t get through to anyone. I’ll try again tomorrow. I would appreciate any advice.



Dear Jen,

Sorry to hear of the difficult situation you’re facing. Hang in there. Each bank has different rules to an extent on how they are dealing with the current troubles so I can’t comment on exactly what you’re facing. However,  here is what I know:

1. A bank can not force you to refinance in the sense that they can not call back a loan unless you’ve violated some very serious terms. Even then it would have to be pretty bad. This is a rule dating back to the aftermath of the Great Depression. If banks could call back mortgages – in today’s climate – 50-60% of folks would lose their homes – since the vast majority are not in a position to pay back their home loans on short notice without selling the house.

2. Banks can sell the servicing rights – in which case the terms of the loans remain unchanged but only the loan is transferred to a different lender. This doesn’t require you to refinance.

So, with that – I am not sure what exactly Indy is trying to do. I would try to reach someone there and ask them exactly what they are talking about.

I don’t know what else to say really.

Hope that helps. Good luck Jen!

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