Why it matters where mortgages go...

A short while ago I wrote about what happens to a mortgage after you close it. The short end of the story (you can click on the link to read the whole thing) is that banks will almost always package up your mortgage with others and then sell that package to an investor. Typically this doesn't matter much to you, the borrower.

However an article recently at CNN.com brought up one point that could matter. Just as the company who buys your mortgage can't change the terms, neither can you. If you think you were sold an obscene loan (usually some derivative of an ARM), one step you can do is talk to your mortgage company about "re-characterizing" your loan. Essentially you are asking them to refinance your loan (at no cost) to a reasonable fixed-rate loan.

The bank is not beholden to acquiesce to your request (bonus points if you recognized the reference), however if you can convince them that such a move would be mutually-beneficial (such as, you may have to foreclose under current terms), they may be open to such an agreement. This isn't the type of option you can use to strong-arm the bank into a discount rate, but rather to try to switch from a variable ARM to a fixed-rate loan.

The catch? If the bank has sold your mortgage then they no longer have the ability to alter your terms. At that point you have no other recourse than true refinancing (and paying the fees that go with it).