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When
you take out a mortgage, 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 new
servicer. Because 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 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 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 to the
insurance company or tax authority can
help ensure 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 them 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 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 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 your
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.
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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.
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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.
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When
you receive the letters, read them
carefully making note of the new
servicer's name, address, phone
number, contact name and payment
information.
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When
making payments after your servicing
has been transferred, follow the
instructions in the welcome
letter.
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Make
sure your insurance companies
(homeowners, flood/hazard,
life/disability) and your tax
authority have been notified of the
transfer.
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Find
out which company will be reporting
on your interest paid for income tax
purposes.
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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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