Such transfers normally take place without a hitch. But you need to make sure the rightful loan servicer receives your payments. It’s the mortgage market’s equivalent of a Dear John letter: “Goodbye. We’ve sold your loan to another lender.”
Some borrowers receive the missive a few days after they close on their loans. Sometimes it arrives years later. But over the life of the mortgage, practically every homeowner is sure to receive one. The loan may be sold two, three or even four times to other lenders.
In mortgage-industry parlance, it’s called a “transfer of servicing.” But although some borrowers may take the notice as a personal affront, it’s really nothing to fret about.
“People shouldn’t take it personally,” said Alan Jones, senior vice president for servicing at Wells Fargo Home Mortgage. “It doesn’t have anything to do with anything they have done. It’s a standard business practice.”
Wells Fargo is one of the few lenders that rarely transfers the servicing rights to the loans it originates. Otherwise, the practice is very common.
About half of all loans are sold at the time of their origination, usually by lenders who simply are not equipped to collect payments, manage escrow accounts, pay taxes and insurance, respond to questions and prepare payoff statements when you sell or refinance. And most of the rest are sold later.
Why? Because administering loans has value. About one-quarter of 1% of the interest rate you pay goes to the firm that services your mortgage.
That doesn’t make it any more palatable for homeowners who now must mail their checks across the country instead of across town and speak with a faceless clerk in some other state, rather than the person down the street they’ve come to know and trust.
In reality, though, the change could be beneficial. Not only will you be dealing with a firm that can provide the service you deserve, but your new servicer also may be able to offer products and services not available from the original one.
Normally, handoffs from one lender to another take place without a hitch. Every so often, though, the seller or the buyer drops the ball. So you should take steps to make sure that yours isn’t fumbled.
Under the National Affordable Housing Act, you should receive a “goodbye” letter from your current servicer at least 15 days before your next payment is due. The letter must state the name, address and telephone number of the new servicer, the date the old company will stop collecting payments and the date the new company will start accepting them.
Under the Helping Families Save Their Homes Act, signed by President Obama on May 20, the new owner of your loan — which may or may not be the servicer — must also notify you of the transfer within 30 days.
You also should receive a “hello” letter from the new servicer that outlines the same information. But if you receive only a welcome letter, be wary; you may be the intended victim of a scam by someone who is hoping to persuade you to mail your payments to him.
If you just get the one letter from the new servicer, call the old one to verify that your loan has been transferred. If it hasn’t, notify the authorities.
Once you are certain an exchange has taken place, follow the instructions contained in the welcome letter. If you don’t, you run the risk of the payment not arriving on time.
If you send your payment to the former servicer, the company usually will forward it to the new one. But it won’t continue to do so for long. So if you keep making this mistake, your payments could become lost and you could incur late fees.
Often, the new servicer will send a new coupon book. But if your next payment is due before the coupons arrive, write your loan number on the check and send it so it arrives on time. It’s also a good idea to include the appropriate coupon from the old servicer. But either way, keep your own records.
If you make your payments through an electronic-funds transfer or automatic draft, you will need to cancel your old arrangement and start a new one. And because this often takes time, you may have to make your first payment to the new servicer by check.
Even if you follow the new servicer’s instructions, Jones of Wells Fargo says it’s always a good idea to monitor your account closely for a while “just in case there’s a disconnect.”
The new servicer cannot change the terms of your mortgage. Your loan number probably won’t be the same. (Keep track of your old loan number in case you have any questions.) But your rate, term, payment date and other conditions must remain the same.
However, at some point after the exchange, the new servicer will analyze your escrow account to determine whether an adequate amount is being collected each month along with your principal and interest payments to cover your property taxes, hazard insurance and mortgage insurance. If not, your total monthly payment could go up.
If you were specifically allowed to pay taxes and insurance on your own under the old mortgage, the new servicer cannot now demand that you establish an escrow account. But if the contract was neutral on the issue or merely limited the actions of your old service, the new one may be able to require such an account.
If you receive a notice during the transition period that either your insurance or taxes are due, call the new servicer to make sure that it has gotten the same notice. It is the old servicer’s responsibility to notify the tax collector and insurance company of the transfer. But if it messed up, you’ll get the bill.