You may think that getting a mortgage and signing the papers that spell out how much you'll pay your lender over the next 15 or 30 years is the start of a long-term relationship. Then you get a letter saying that your loan has been sold. What does that mean?

Although it may feel disconcerting to have your mortgage "sold out from under" you, the only important things that really change are the name you put on the check and the address where you send it. The loan itself stays the same. If you were paying $1,029.37 a month to the old company, that's exactly what you'll be paying the new one. Of course, you might find yourself getting more offers to take out a home equity loan, buy insurance, or switch banks. That's because there is a profit to be made in every aspect of the mortgage industry, including servicing the loan.

It's this potential for creating new business that helps keep mortgage rates low, says Jay Brinkmann, vice president for research and economics with the Mortgage Bankers Association of America, the Washington, D.C.-based industry trade association. "My guess is that probably close to 80 percent of mortgages are sold at least once over the life of a loan," he explains. Although some lenders hold on to their own loans, most are in the business of lending money, not collecting interest. That's for the people and institutions that buy them, he adds. Selling mortgages generates more cash for the lenders to use to make other loans. And many people don't know their mortgages have been sold since it has no real bearing on the loan.

There are actually two parts to a mortgage; the loan itself and the servicing of that loan, and both can be sold either together or separately. First, there is the loan or promissory note. If you borrowed $100,000 at 6 percent for 30 years, the lender that owns the note gets the monthly payments and interest minus the servicing charge, which we will look at later. The company servicing the loan sends that money to the note holder. The servicing company also collects the payments, makes sure they are made on time, handles escrow accounts, sends out late payment and delinquency notices and, when necessary, forecloses.

Fannie Mae and Freddie Mac are the two largest note holders in the nation. Fannie Mae buys roughly one out of every four conventional mortgage loans issued. Freddie Mac, which is slightly smaller, buys one out of every six. But nobody writes mortgage checks to Fannie Mae, Freddie Mac, or to any of the other investors that buy mortgages. Instead, people make their payments to "their mortgage company", even though it is really a servicing company.

Brinkmann explains that the loans are packaged and sold to investors as mortgage-backed securities. A pool will have an average value of about $10 million, which works out to about 50 mortgages per pool, he says. "These pools will sometimes be combined to make bigger ones." Investors are not interested in buying individual loans. It's too risky. If an investor bought just one loan, the risk would be greater and the interest rate would be higher. The loan could default, and the home would have to be repossessed. Or, the loan could be paid off early, eliminating the long-term interest income the buyer expected. Being able to lower the risk by pooling keeps the interest rate lower and makes the market more efficient.

"By buying into a pool of loans you share the risks of someone defaulting, and of someone paying off the loan early. You don't know if you have an asset that will last for six months or 30 years, and the way to deal with this is to have a number of mortgages. There is safety in numbers." In other words, if you have a piece of 50 mortgages, even though some of them may default, or get paid off early, costing you interest income, most of them will do what they are supposed to do-return your investment and generate a regular interest income.

Investors do not send out statements or even keep track of who owes how much and when it is due. That's left to the servicing company. The fee for this is 25 basis points, or one-quarter of a percentage point. So, if an investor has mortgage-backed security loans that the borrowers got at 6 percent, the typical investor will get 5.5 percent and the servicing company will get 0.25 percent. The other 0.25 percent goes to other costs such as overhead, pooling the loans, and preparing the packages.

On a $100,000 loan at 6 percent, the servicing company can expect to make an average of $250 a year. But since interest is based on the unpaid balance, that number goes down over time. Older loans are less profitable. Of course the servicer gets to keep any late fees or penalties to pay for their own risks. Brinkmann explains that the servicing company has to pay the investors on time every month, even if the homeowner doesn't.

"Some companies are amazingly efficient and make servicing loans profitable," he says. "They do it extremely well. There are also other benefits. Very large companies that have other things to sell such as home insurance, life insurance, home equity loans, and other banking or financial services, do most of the servicing. They have the right to put advertising fliers in the statements every month."

Regardless of advertising fliers or mailing addresses, it doesn't really matter who owns or services your mortgage. While the name on the checks can change, the terms of the contract you signed will stay in effect as long as you keep your part of the contract. Your lender can sell your mortgage, but it is still your home, no matter whose name you put on your monthly mortgage check.