After all your work choosing a mortgage lender, filling out the application, supplying documentation, and getting the loan approved, you might be surprised to learn that your relationship with that lender could be relatively short. 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. This kind of notice differs from the notice your mortgage servicer must send you if the servicing rights are transferred.
First, let's define the terms "lender," "servicer," and "investor" when it comes to the mortgage business.
The "lender" is the financial institution that loaned you the money. The lender owns the loan at that point.
Later, the lender might sell the mortgage debt to another entity, which becomes the loan's new owner. Mortgages are frequently bought and sold in the mortgage industry. Any particular mortgage debt might be sold multiple times. Also, loans are sometimes packaged with other loans and sold as part of a mortgage-backed security.
The sale of your mortgage loan to a new owner doesn't affect the terms or conditions of the loan contract.
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 that acts on behalf of the loan owner. That servicer might then hire a vendor, called a "subservicer," to take on the servicing duties rather than servicing the loan itself.
A mortgage "investor" is the party that purchases home loans that lenders originate. For example, Fannie Mae and Freddie Mac are investors that buy loans from lenders on the secondary market.
Some lenders specialize in originating mortgages. But the original lender might be unable to wait 15 or 30 years for the borrower to pay it all back. By selling mortgage loans, the lender gets these debts off their books. Then, they can offer loans to other homebuyers.
If the holder of your mortgage loan sells the debt to a different entity, federal law requires the new owner or assignee to notify you about the change of ownership no later than 30 days after the sale, transfer, or assignment. (15 U.S.C. § 1641).
If you receive a notice that your mortgage has been sold, don't worry. Your loan's terms, including the interest rate, monthly payment, and outstanding balance, won't change.
You might need to mail your payment check to a new address or redirect your automatic bank withdrawal to a different entity, depending on if the servicer also changes.
If your mortgage debt is sold and you get an ownership transfer notice, this doesn't necessarily mean that the servicing rights to the mortgage were also sold or that you'll get a new servicer. But if your mortgage loan is transferred to a new servicer, your current servicer and the new servicer must provide you with 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're allotted 60 days 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. Also, your payment won't 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 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 send your mortgage payments to the new servicer, you should monitor at least two payments to ensure the new servicer is correctly applying them to your account.
Call your new servicer if a payment you sent to the old servicer isn't credited to your account. If you can't clear up the problem, send a notice of error to the new and old servicer, along with copies of any relevant supporting documents. Under federal law, both the new and old servicer must then investigate and respond to your notice of error as long as the servicing transfer occurred less than a year ago.
In the meantime, you should continue making regular payments to the new servicer while the issue is 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.