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When
you take out a mortgage with a mortgage company or a bank, there is always a
possibility that the lender will sell or transfer the servicing of
your loan to another institution. Servicing means the collection of
payments and management of operational procedures related to mortgages. When
servicing is sold, it means that another lender will be taking your payments,
handling your escrow accounts, paying your insurance and taxes and answering
your questions. This may happen right after you close the loan or several years
later.
The
practice of selling or transferring the servicing of your loan is
legal and is very common in the mortgage industry. When the servicing is sold,
it is usually packaged in a bundle with other loans. Some mortgage companies
only originate loans and sell or transfer the servicing immediately. It is more
cost-effective for these companies to do this because servicing is not a part of
their business. It is not uncommon to get your mortgage from a neighborhood
lender and have it transferred to an institution in another state. It is also
possible for your mortgage servicing to be transferred more than once during the
life of your loan.
Whether
or not your servicing is sold has nothing to do with the quality of your loan
or your payment history. It has, in fact, nothing whatever to do with you
personally.
The
company that holds your loan makes the decision to transfer servicing to another
institution. The company does not have to ask your permission to transfer the
servicing, but it does have to inform you of the transfer.
The
transfer of servicing should not affect you or your mortgage adversely. The
original terms and conditions of your mortgage will stay the same. Your interest
rate and duration of your loan will not change on fixed rate loans. Your payment
should stay the same or on the same schedule except in cases where changes in
taxes or insurance requirements increase or decrease the escrow amount.
If
you have an adjustable rate mortgage (ARM), the original conditions of the
mortgage contract stay in effect and the rate will change according to the
adjustment periods (i.e. every six months, annually, every three years, etc).
This information is contained in your contract, but you are welcome to verify
the information with your new servicer. If your original lender agreed to let
you refinance to a fixed-rate mortgage within a certain time-frame, you should
ask whether this agreement would be honored by the new lender.
When
your lender decides to transfer servicing, you should receive a goodbye
letter at least 5 to 15 days before the date your next payment is due. The
letter should state who your new servicing company will be, where it is located,
the name and phone number of a contact person or department, and where and when
you should send your next payment. You should also receive a welcome
letter from the new servicer that outlines the same information. Both letters
should give the name of the new institution, a contact, phone number, (toll-free
if available), the new servicer's address, and instructions for making your next
payment.
It
is very important that you receive both letters. If you receive only a letter
from the new servicer, be sure to call your original servicer to verify that
your loan actually has been transferred. It is extremely important that you keep
your servicer informed of your current mailing address, so that you will receive
all relevant correspondence.
If
you have received both letters or have verified the transfer of your mortgage
with your old servicer, be sure to send all payments from that point on to your
new servicer. If you send the payment to the old servicer, you run the risk of
the payment not getting to the correct lender in time, paying a late charge or
of having the payment being lost. It is your responsibility to send the payment
to the new servicer once you are informed of the transfer.
The
welcome letter from your new servicer will often inform you if you will
be receiving new payment coupons. But if your payment is due before the coupons
arrive, write your loan number on the check and send it to the address provided
in the welcome letter. If you have coupons from your previous servicer, you may
include this with your payment.
You
will want to read the welcome letter carefully for payment instructions.
Your payment date will not change, since it is determined in your original
mortgage documents. If your mortgage is paid through electronic funds transfer
or automatic draft each month, you will need to cancel that arrangement and fill
out new forms for the payment to be sent to the servicer. Since this often takes
time, you may need to send a check yourself for a payment until your electronic
funds transfer is changed over. This is something that you will need to take
care of. The new servicer cannot take the payment from your savings or checking
account without your signature.
If
you accidentally send your payment to your old servicer, the company will
usually forward the first payment to new servicer, but they will not continue to
do this. By not sending your payment to the correct office, you risk your
payment being lost. There are some cases where the old servicer no longer exists
due to a merger or take over. In that case, the payment may be returned to you
by the postal service after several weeks, which may cause a late charge to be
assessed to your account.
It
is always best to follow the payment instructions received in the welcome
letter or ask your new servicer about alternate payment locations.
It
is your old servicer's responsibility to inform the insurance company and your
tax authority of the change in servicer. A follow-up call from you the insurance
company or tax authority can help ensure that the tax or insurance bill is not
sent to the wrong servicer. You should be able to find their number on your
original insurance documents. When you call the insurance company or tax
authority, make sure they have your current address and phone number in case
they need to contact you.
If
your escrow account is interest-bearing, all interest due should be credited to
your account by the old servicer before the transfer takes place. Your old
servicer is responsible for handling these items prior to the transfer.
Some
time after your servicing is transferred, your new lender will make an analysis
of your escrow. During the analysis, the lender reviews your escrow amount and
determines if it is adequate to cover the fees for your insurance, taxes and any
other premiums paid through escrow. If the amount is found to be insufficient,
the lender may ask you to increase your regular monthly payment. If it is your
new servicer's policy to review escrow accounts as soon as the servicing is
transferred your payment may change immediately, you should receive an
explanation regarding any changes.
If
you receive a notice that either your insurance or taxes are due, call your new
servicer and make sure that company has on file that funds have been escrowed
for the premium. If the new company has not received a copy of that bill, it
will probably direct you to send in the bill for payment. If you have a question
after the transfer has taken place, you should contact your new servicer, even
if your old servicer was the one that collected the funds for your insurance or
tax payment.
Some
mortgage companies offer to escrow life or disability insurance (insurance that
would pay off the mortgage in case of death , or make payments in case
disability). In these policies, the lender who originally made your loan is
named as the beneficiary. If you have these policies, your old servicer should
inform you of what effect the transfer of servicing will have on this insurance
coverage and what action you may need to take to maintain coverage.
On
flood and hazard insurance, it is the responsibility of the old servicer to
provide the insurance agent or company with a notice of transfer. The
beneficiary may be able to be transferred from one company to the other, but it
is wise to make sure this occurs. You should make sure to transfer the
beneficiary to ensure that, in case of a claim, the check is written and sent to
appropriate servicer.
Make
sure that you find out which lender will be reporting your interest paid for
income tax purposes. Sometimes, both lenders will report on the time that they
had the loan. Quite often, the new lender will compile the information and send
you one tax statement at the end of the year that covers the entire year. You
should find out about this at the time of the transfer so that you know if you
should look for one statement or two at the end of the year.
Usually
your old servicer will make sure everything is taken care of prior to the
transfer, but is in your best interest to check on all details. It is best to
ask questions at the time of the transfer to make sure everything is handled
before your old servicing company purges your records from its files. It is much
more difficult to get information from an institution that has not handled your
loan for the last six months.
If
you have questions regarding you specific transfer, it is always best to contact
your new servicer in writing. At times of mortgage transfers, most companies are
flooded with phone calls so you may get faster and clearer information through
the mail.
- Always
keep your servicer informed of any changes in your address and phone number.
Provide this information in writing and forward it to the address indicated
in your welcome letter. This address is usually different from the
one that you would send payments.
- When
your servicing is transferred, make sure you receive both a goodbye
letter and a welcome letter. If you don't receive both letters, call
your old servicer to verify the transfer.
- When
you receive the letters, read them carefully making note of the new
servicer's name, address, phone number, contact name and payment
information.
- When
making your payments after your servicing has been transferred, follow the
instructions in the welcome letter.
- Make
sure that your insurance companies (homeowners, flood/hazard,
life/disability) and your tax authority have been notified of the transfer.
- Find
out which company will be reporting on your interest paid for income tax
purposes.
- Ask
questions at the time of the transfer. If there is a problem, it is easier
to handle it as soon as it arises. If you have questions after the transfer
is completed, contact your new servicer.
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