The credit-notification tactic that keeps refinancing in-house

If a bank can swipe a loan, it earns money for the new loan and the re-creation of the servicing contract

Here is a story about sales practices that you’ve probably not heard. During each of the waves of refinances in the stair-step decline in rates in the last dozen years, one bank in particular adopted an aggressive tactic. To understand, a brief preamble. MBSs, loan servicers and big banks When a mortgage loan closes, the IOU is securitized into an MBS (mortgage-backed securities) which is sold off to Wall Street. The “Street” wants nothing to do with the borrower or originating “lender” (since the 1980s we are all brokers, even big banks), and so the ultimate holder of the MBS sends a fee back upstream to hire a “servicer,” who does not own the loan but earns income in exchange for collecting monthly payments, handling tax and insurance escrows, and standing ready to foreclose in the event of default. After the death of S&Ls (savings and loans) 25 years ago, big banks accumulated the servicing contracts. Bank of America, Chase, Wells Fargo -- and the exc...