After all your work choosing a mortgage lender, filling out the application and supplying documentation, and getting the loan approved, you might be surprised to find out that your relationship with that lender is a relatively short one. Mortgage lenders often sell the loans that they originate to bring in income so that they can turn around and—no surprise here—make more loans. If your mortgage loan is sold, the new owner must, by law, notify you of that fact. This kind of notice is different from the notice that your mortgage servicer must send you if the servicing rights are transferred.
Read on to learn more about the different parties involved in the mortgage servicing industry, when the new owner or servicer of your loan will send you notice about a transfer, and what happens if you send your payment to the wrong party in the middle of a transfer.
First, let’s define the terms "lender," "servicer," and "investor" when it comes to the mortgage business.
Lender. The lender is the financial institution that loaned you the money. The lender owns the loan at this point. Later on, the lender might sell the mortgage debt to another entity, which then becomes the new owner of the loan. Mortgages are bought and sold frequently in the mortgage industry. The sale of your mortgage loan to a new owner does not affect the terms or conditions of the loan contract.
Servicer. A servicer handles the day-to-day tasks associated with mortgage loans, like collecting and processing payments, responding to borrower inquiries, and managing escrow accounts. The servicer might be the lender that gave you the loan (or a subsequent owner of the loan). Or, it might be a separate company—a third-party servicer—that acts on behalf of the loan owner. The third-party servicer might then hire a vendor, called a subservicer, to take on the servicing duties, rather than servicing the loan itself. (Learn more about how mortgage servicing works.)
Investor. A mortgage investor is the party that purchases home loans that lenders originate. Fannie Mae and Freddie Mac, for example, are investors that buy loans from lenders on the secondary market.
In 2009, President Obama signed the Helping Families Save Their Homes Act of 2009 into law. Among other things, this law amended the Truth in Lending Act to require that borrowers get notice when the mortgage debt on their primary home has been sold, transferred, or assigned to a new creditor.
Under federal law, the new owner or assignee of the debt must notify you about the change of ownership no later than 30 days after the sale, transfer, or assignment. (15 U.S.C. § 1641).
If your mortgage debt is sold and you get an ownership transfer notice, this does not necessarily mean that the servicing rights to the mortgage were also sold or that you will get a new servicer. But if your mortgage loan is transferred to a new servicer, your current servicer the new servicer must, if your case is a typical one, each provide you with a notice.
In most situations, your old servicer must provide you with a notice of servicing transfer not less than 15 days before the effective date of the transfer and your new servicer must provide a servicing transfer notice not more than 15 days after the transfer date. Or the servicers might choose to send a combined notice not less than 15 days before the transfer. (12 C.F.R. § 1024.33).
Under federal law, you are allotted a 60-day period starting on the servicing transfer date during which you can still send your mortgage payments to the old servicer rather than the new servicer—even though the new servicer is the proper recipient. During this time, you won’t be assessed a late fee and your payment will not be reported late to the credit bureaus if the old servicer receives your payment on or before the payment due date, including any grace period you get under the mortgage loan documents. (12 C.F.R. § 1024.33).
The old servicer is then supposed to forward the payment to the new servicer or return it to you. In rare cases though, the old servicer might lose track of the money or deposit the payment in its account, but neglect to send the funds on to the new servicer. For this reason, it’s best to take careful note of any changes in your loan servicer and start sending your payments directly to the new servicer once the transfer date occurs.
After you start sending your mortgage payments to the new servicer, you should monitor at least two payments to make sure the new servicer is correctly applying them to your account.
If a payment you sent the old servicer isn't credited to your account, call your new servicer. If you can’t clear up the problem, send a notice of error to both the new servicer and the old servicer along with copies of any relevant supporting documents. Under federal law, both the new servicer and old servicer (so long as the servicing transfer occurred less than a year ago) must then investigate and respond to your notice of error. In the meantime, you should continue to make your regular payments while the issue is being resolved. Otherwise you could risk going into default and face a possible foreclosure.
If the new servicer still refuses to credit your account or starts a foreclosure, talk to an attorney.