When you apply for a
home mortgage, you may think that the lender, or loan originator, will
service the loan until it is paid off or your house is sold. This is not
always true. In today's market, mortgage servicing rights often are bought
If you are notified that your home mortgage servicing
has been sold to another company, you may wonder how it will affect your
loan terms and monthly payments. Some consumers have complained that they
were not given enough notice of loan servicing transfers and were unfairly
charged late fees and penalties.
In 1990, the National Affordable
Housing Act was passed to address some of these concerns. This brochure
explains what a mortgage servicer does and what your rights are under the
Housing Act. It also tells what you can do if you have a complaint about
the transfer of your loan servicing.
What are the
responsibilities of a mortgage servicer?
The mortgage servicer collects your monthly payments and handles your
escrow account. An escrow account is a fund that your lender establishes
in order to pay property taxes and hazard insurance as they become due on
your home during the year. In this way, the lender uses the escrow account
to guard its investment in your home.
When your escrow account is
first established, your mortgage servicer must give you a statement
telling you the estimated taxes, insurance premiums and other charges that
are anticipated over the next 12 months and the expected totals of those
The mortgage servicer also is required to give you an
annual statement that details the activity of your escrow account. This
statement shows your account balance and reflects payments for property
taxes and homeowners insurance.
What does the housing act require lenders or servicers to
To protect consumers, the National Affordable Housing Act requires
lenders or servicers to do the following.
Provide a disclosure
The disclosure statement says whether the lender
intends to sell the mortgage servicing immediately; whether the mortgage
servicing can be sold at any time during the life of the loan; and the
percentage of loans the lender has sold previously. During 1992, lenders
had to disclose the percentage of loans for which the servicing was sold
in 1990 and 1991. Beginning in 1993, lenders must report figures for the
previous three years. The percentages should be noted in the ranges 0-25%,
26-50%, 51-75%, and 76-100%. The lender also must provide information
about servicing procedures, transfer practices, and complaint resolution.
If you have a face-to-face interview with a lender, you must
receive the disclosure statement at the time of the loan application. If
you apply for a loan by mail, the lender has three business days to send
you the disclosure statement after receiving your application. If you do
not return a signed disclosure statement, the lender cannot fund a
mortgage for you.
Give proper notification when the loan
servicing is going to be sold.
If your current servicer plans to
sell your loan servicing, you must be notified at least 15 days before the
effective date of the transfer unless you received a written transfer
notice at settlement. The effective date is when the first mortgage
payment is due at the new servicer's address.
circumstances, the current servicer has up to 30 days after the effective
date of the transfer to send you notification. These circumstances
* The lender terminates the contract because, for
example, you have defaulted on the loan.
* The servicer files for
* The Federal Deposit Insurance Corporation or the
Resolution Trust Corporation begins proceedings to take over the
* Include certain information in the
If your loan servicing is going to be sold, you should
receive two notices -- one from the current servicer and one from the new
mortgage servicer. The new servicer must notify you not more than 15 days
after the transfer has occurred.
The notices must include the
* The name and address of the new servicer.
* The date the current servicer will stop accepting mortgage
payments, and the date the new servicer will begin accepting them.
* Free or collect call telephone numbers for both the current
servicer and the new servicer that you can call for information about the
transfer of service.
* Information that tells whether you can
continue any option insurance, such as mortgage life or disability
insurance, and what action, if any, you must take to maintain coverage.
You also must be told whether the insurance terms will change.
statement that the transfer will not affect any terms or conditions of
your mortgage documents, except the terms that are directly related to the
servicing of the loan. For example, if under your contract, you
specifically were allowed to pay property taxes and insurance premiums on
your own, the new servicer cannot demand that you establish an escrow
account. However, if your contract was neutral on this issue or merely
limited the actions of your old lender, the new servicer may be able to
require such an account.
Grant a grace period during the
transfer of the loan servicing.
After the transfer, there is a
60-day grace period. During this time you cannot be charged a late fee if
you mistakenly send your mortgage payment to the old mortgage servicer
instead of the new one. In addition, the fact that your new servicer may
have received your payment late cannot be reported to a credit bureau.
Respond promptly to written inquiries.
If you believe
you have been improperly charged a penalty or late fee, or there are other
problems with the servicing of your loan, contact your servicer in
writing. Be sure to include your account number and explain why you
believe your account is incorrect.
Within 20 business days of
receiving your inquiry, the servicer must send you a written response
acknowledging your inquiry. Within 60 business days, the servicer must
either correct your account or determine it is accurate.
servicer must send you a written notice of what action it took and why.
Do not subtract any disputed amount from your mortgage payment.
Many mortgage servicers will refuse to accept what they consider to be
partial payments. They may return the check and charge a late fee, or
declare the mortgage is in default and start foreclosure proceedings.
What can you do if you have a
If you believe the servicer has not responded appropriately to your
written inquiry, contact your local or state consumer protection office.
You also should contact the Department of Housing and Urban Development
(HUD) to file a complaint under the National Affordable Housing Act.
Write: Office of Single Family Housing, HUD, Room 9282, Washington, DC