Don't panic if your mortgage is transferred Practice is common; laws protect debtor


You sweated over a phone book-high stack of documents, got an ulcer over your credit report and wondered how in the world you were going to cover the monthly payment.

For a few weeks there, you did little other than work on getting a mortgage, making sure everything was just right for the purchase of your piece of the American dream.

But before you were barely even settled into the house, your lender wrote you a nice, friendly letter telling you it was no longer handling the loan, that a new company would collect the payments and manage the escrow account.

Time to panic?

Not exactly. Although such a switch can appear to be a frightening twist in the management of what is most families' biggest debt, selling or transferring the servicing of a mortgage is not only legal and acceptable, but commonplace.

Some mortgages are transferred only days after settlement, some after several years, and some can be transferred three or four times before they're paid off.

For decades, lenders, including mortgage brokers and banks, have been transferring or selling mortgage servicing. But in 1990 Congress tightened regulations concerning what consumers must be told about such transfers.

The National Affordable Housing Act attempted to reduce complaints from consumers that they were not given proper notice of the transfer and were being charged fees when their payments were late.

"There have always been rules in place, but that act has cleared up a lot of questions people had," said Joanne Carter, of the Federal Trade Commission's consumer protection bureau.

Essentially, a transfer makes no changes in the terms of your loan. All the conditions in the original agreement remain the same: the interest rate, duration, monthly payment and due date. If it is an adjustable-rate loan, the rate will change at the intervals at which you originally agreed.

Two possible minor changes: The escrow account, the fund lenders maintain to pay property taxes and hazard insurance as they come due, could go up or down slightly if the payment schedule changes. And, if you pay your mortgage through an automatic transfer out of your checking account, you'll need to cancel that arrangement and redirect the payment.

While the transition is usually a smooth process, consumers should keep an eye on several details, housing and mortgage experts said.

"I guess the worst thing that could happen is that the servicer calculates the escrow differently and the amount goes up," said Bill Glavin, a spokesman for the U.S. Department of Housing and Urban Development, which oversees enforcement of the regulations.

In the case of a complaint about escrow changes, HUD offers a form to help consumers calculate the correct amount. This year, Mr. Glavin said, HUD has found only two or three instances in which the lender has figured the payment incorrectly. The errors were fixed immediately, he said.

A central part of the National Affordable Housing Act regulations is a detailed timetable that outlines requirements for lenders.

For example, your current servicer must notify you about the transfer 15 days before it takes place. The new servicer also must notify you by sending a letter that includes such things as the name and address of the new company, the date on which the old servicing company will stop taking payments, and a telephone number for each servicer.

If all of that sounds a little confusing, don't worry. You have two months to make your mistakes before you start paying for them.

For the first 60 days after the transfer, the lender cannot charge a late fee if you mistakenly send your payment to the old servicer. Also, if the new servicer receives a late payment during that time, it cannot report it to the credit bureau.

If you write the servicer about a problem, it must respond in 20 days and fix the problem in 60 days.

For a peek at the likelihood that your mortgage will be sold, check your mortgage documents. By law, lenders must disclose the percentage of loans they transferred for the past two years. Next year, they'll have to start providing that information for the past three years.

They also are required to tell you how transfers work and how to settle complaints, all of this before you even get the mortgage.

The Federal Trade Commission and the Mortgage Bankers Association offer these tips:

* Verify the transfer with both servicers after you receive notification. If you have received word from only the new servicer, call your current servicer and straighten out the discrepancy.

* Always let your servicer know if you move to make sure the servicer has your current address.

* Never subtract any disputed amount from your payment. The lender could consider it a partial payment and return the check with a late fee or declare the mortgage in default and start foreclosure.

* Find out who will report your tax information to the Internal Revenue Service. Usually the new lender will handle the paperwork, but it is important to know whether to look for one statement or two at the end of the year.

* Verify that your insurance companies and local tax authority have been notified of the transfer. They almost always are but it doesn't hurt to check.

* Ask questions over the phone or by mail. Both companies are required to tell you just about anything you need or want to know about your loan.

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