Don’t be insulted if…
In writing this column, I never know where a good idea is going to come from.
My partner, Eric, and I walk our beloved Boston Terrier, Abbey, a lot. About a month ago, we came across Cathin Bishop and Laura Simon, walking their dog, Chance—a Papillon. After a bit of chit chat and doggie banter, one of the girls referenced my column and made a suggestion for an upcoming issue. I love when that happens.
They had recently received a letter from their current lender saying their mortgage was about to be “sold” to another bank. Having had time to read the fine print and do some research of their own, they were now able to make light of the fact that they initially felt rather insulted at the news.
Given a perfect payment history, good credit scores and minimal debt otherwise, they questioned why this had happened and, more importantly, what it meant for their loan.
As I explained to the girls, they’re not alone. Approximately half of all mortgages are sold from one lender to another. It’s standard business practice for the industry. Why? There are a host of reasons, but simply put, because administering loans has value and banks have determined it’s a way to increase revenue and control operations.
It’s the mortgage industry’s equivalent of a “Dear John” letter. Despite the prospect of a long-term future, lenders opt to end an otherwise healthy relationship in favor of the next mortgage passing by. Life can be so unfair.
In mortgage-talk, it’s called a “transfer of servicing,” and essentially means selling the servicing rights to the loan. If you have a mortgage, it simply means you’ll be making your payments to another company. It may never happen to you, but it could happen many times. If it does, it’s important to know that you have specific, legal rights as a mortgage consumer.
When you first applied for a mortgage, the lender gave you information about the likelihood of the loan being sold to another investor. Specifically, the Servicing Disclosure is a federally mandated document required to be presented to the consumer during the application process and again at Closing. It includes the percentage of loans sold over the prior three years. While it isn’t a guarantee that your loan will/won’t be sold, it at least gives you an indication as to the bank’s history of doing so.
Federal regulations also dictate that both the selling and buying lenders must notify you in writing of the change at least 15 days before the due date of your next scheduled payment.
Commonly referred to as the “goodbye” and “hello” letters, the notices must include the following…
- The name, address and phone number of the new servicer.
- The date the current lender will stop accepting mortgage payments.
- The date the new lender will start accepting payments.
- A statement that the transfer will not affect any terms or conditions of your mortgage.
Regarding the last point, this means your monthly payment, interest rate, and other conditions won’t change when the new lender takes over the loan. For example, if your current lender allows you to pay real estate taxes and homeowners insurance on your own, the new lender can’t demand that you establish an escrow account.
In the unlikely event you don’t receive both letters, contact your current lender for clarification. Scams do exist so be wary should you only receive a “welcome” letter. Once you’re certain a transfer has taken place, follow the instructions from the new lender. If you don’t, you run the risk of the payment not arriving on time.
Regulations prohibit your loan from being termed “delinquent” for a period of 60 days during the transfer of servicing. During this grace period, you can’t be charged a late fee if you mistakenly send your payment to the old servicer instead of the new one. Plus, the new servicer can’t report a late payment to a credit bureau(s) during this period.
If you feel you’ve been improperly charged a penalty or late fee, or discover other problems with the transfer, contact the lender(s) in writing. Be certain to include your loan number (old and new) and explain the circumstances. Within 20 business days of receiving your inquiry, the servicer must send you a written response acknowledging receipt.
Should you find yourself in this position, don’t stop paying, and don’t subtract any disputed amount from your regular monthly payment. To do so would likely jeopardize your credit history for years to come. It’s the law for the servicer to investigate your claim and either correct your account or determine it’s accurate within 60 days.
At some point after the transfer, the new lender will analyze your escrow account to determine if sufficient funds are being collected to cover your real estate taxes, homeowner’s insurance, and possibly mortgage insurance. If this is the case, your total monthly payment could increase.
You may also receive a notice during the transition period that either your insurance or taxes are due. If this happens, contact the new lender and seek confirmation that they’ve received the same notice. It’s the old lender’s responsibility to notify the tax collector and insurance company of the transfer. Better safe than sorry.
If all else fails and you’re not satisfied, the Department of Housing and Urban Development (HUD) is a resource available for borrowers to place an inquiry or file a complaint. Good luck.
Special thanks to Cathin, Laura and Chance. Our brief exchange on Rehoboth Avenue inspired this column. Just be ready with another idea the next time you see us coming.
Chris Beagle is a Senior Loan Officer at Fairway Independent Mortgage Corporation. For more information, contact Chris at 302-260-7090.