It's been one month since you've closed on your mortgage loan for your dream home. You've unpacked the furniture, hung the pictures, and painted the rooms. One day you open your mailbox to find a notice from your mortgage servicer. The letter states that the servicing of your loan has been handed over to another company. Do not panic! Your loan has simply experienced a transfer of servicing – a common occurrence in today's mortgage industry.
Transfer of Loan Servicing - A Quick Explanation
When your lender transfers servicing, they hand over the management of your loan to a new mortgage company. All this means for the borrower is that a new institution will be collecting your payments, handling your escrow accounts, and answering your questions. This transaction will not impact your initial mortgage agreement in any way. Your loan amount, interest rate, and payment schedule will remain the same. Likewise, your contractual payment obligation does not change. Only one change will be made - where you send your monthly mortgage bill.
When a transfer of loan servicing occurs, you will usually receive two notices in the mail: a goodbye letter from your current servicer and a welcome letter from your new servicer. In very rare cases, borrowers might receive a single letter indicating their transfer of servicing. In most cases, your current servicer must notify you at least 15 daysbefore the effective date of transfer. The new servicer must also notify you within 15 days after the effective date of transfer.
Both documents will contain information regarding the impending transfer, including the name, location, and phone number of the new mortgage company. You will also learn where and when you should begin sending your next monthly payment (this is typically outlined in the welcome letter). Each letter will also provide you with a statement explaining your rights and what to do if you should have any questions or complaints about the servicing of your loan.
If you only receive a welcome letter – beware. You could be walking into a possible mortgage scam, designed by a thief looking to collect your mortgage payments.
Therefore, we suggest calling your current servicer upon receiving any goodbye or welcome letters to verify the validity of the transfer.
The Grace Period
The switch between servicers should be relatively smooth. But in case of any confusion, the Real Estate Settlement Procedures Act (RESPA) grants homeowners a 60-day grace period post transfer. During this time, borrowers who send late payments will not be penalized with lowered credit scores. This protects mortgage holders who may send their mortgage payments to their old servicers accidentally. It also serves as a cushion for borrowers needing to reroute their automatic electronic payments to their new servicer's address.
A Helpful Checklist
Most homeowners will undergo a transfer of loan servicing at least once during homeownership. To help you better navigate through the transition, here are a few helpful tips to remember:
- Be certain you receive both a goodbye letter and a welcome letter. If you do not receive both documents, it's a good idea to call your old servicer to verify the transfer.
- Make sure to reroute any automatic electronic payments to the new servicer's address. You don't want to send checks to the wrong company.
- Your servicer will likely notify your homeowners insurance carrier that your loan has transferred to the new servicer. You should still review your subsequent policy renewal notice to verify that the change has been made. If the policy hasn't been updated, contact your insurance company to ensure the update is made.
- Double check accurate mortgage account information as listed on both the goodbye and welcome letters. It's important that you clear up any misinformation sooner, rather than later.
As always, don't be afraid to ask questions. Remember, your servicer is there to help you and make your life as a mortgage holder as simple as possible.