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 and sold.
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 Do?
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
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.
Under certain circumstances, the current servicer has up to 30
days after the effective date of the transfer to send you
notification. These circumstances include:
- The lender terminates the
contract because, for example, you have defaulted on the
- The servicer files for
- The Federal Deposit Insurance
Corporation or the Resolution Trust Corporation begins
proceedings to take over the servicer's operations.
information in the notice.
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 following information:
- The name and address of the
- 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
- 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.
- A 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
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
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.
The 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
What Can You Do If You Have a Complaint?
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
Washington, DC 20410.
You also can send your complaint to the FTC. Write:
Federal Trade Commission
Washington, DC 20580
Although the FTC generally does not intervene in individual
cases, the information you provide may show a pattern of
possible violations of laws that are enforced by the Commission.
You also may want to contact an attorney to advise you of your
legal rights. Under the National Affordable Housing Act,
consumers can initiate class action suits and obtain actual
damages, plus additional damages, for a pattern or practice of
noncompliance. In successful actions, consumers also may obtain
court costs and attorneys fees.