Have you received a servicing transfer notice in the mail recently? Trying to figure out what happened and what impact it has on you? Servicing transfers happen all the time and it is important for you to know what it is, how it works and what your rights are surrounding these transfers.
What is Servicing?
Servicing refers to the company that collects your mortgage payments. You may think of it as your mortgage company. In fact, your mortgage servicer may or may not be the owner of your mortgage.
Imagine a farmers market with a central cashier. You can wander all the different booths with different vendors offering their produce. You select the produce you want from the various vendors and then you head to the central cashier. The cashier rings you up and you pay for the items you purchased. The cashier then determines how much each vendor is owed, minus the cashier’s cut for collecting the payment and then pays each vendor their appropriate share.
Who is the mortgage servicer in this analogy? The cashier. Mortgage servicers are basically bill collectors. They “service” the mortgage on behalf of the owner of the mortgage by collecting payments from the customers that owe the debt, process the payment, take a small fee for the work they have done and then provide the remaining funds to the owner of the mortgage.
Who is the Owner?
The owner of the mortgage could be Fannie Mae, Freddie Mac, a large bank (Wells Fargo, Chase, etc.), local bank or the mortgage company that helped you close your mortgage. Most mortgage companies these days, that are not banks, are Correspondent Lenders. Their role in the process is to help you get your mortgage and then place it with another owner after closing. That is a whole topic on its own, so we won’t try to cover that today.
The mortgage company that helps you close your loan is likely a correspondent lender therefore they will likely not hold your mortgage long term. Typically they will hold your mortgage for 30-90 days until they can sell your mortgage to another entity – normally Fannie Mae, Freddie Mac or a large bank.
Why Does My Servicer Change?
Servicing transfers or changes typically occur when the mortgage owner changes. Each owner has a preferred servicer or they may choose to service the mortgage themselves. When your mortgage is sold from one entity to another the servicing likely changes at the same time.
The most common time this occurs is quickly after closing – normally within 3-90 days. The mortgage company that originated (took your application, processed, underwrote and closed) your mortgage normally does not retain your mortgage and therefore the ownership transfers.
Sometimes you will be making your payments to a particular servicer for years to suddenly receive a notice in the mail informing you that your servicer is changing. This happens based on the owner of your mortgage doing one of two things. Either they have sold your mortgage or they have changed servicers they use to collect your payments.
How Will You Be Notified?
There is a very specific process that must be followed when this occurs and is mandated by the Consumer Finance Protection Bureau (CFPB).
When your mortgage servicing transfers you are required to be notified by both the current and the new mortgage servicer via mail. The notice from your current servicer should be sent to you no less than 15 days prior to the transfer while the new servicer should send their notice no later than 15 days after the transfer. The notices should inform you of when the transfer occurs and when you will stop making payments to your current servicer and the new servicer will be taking payments. The notices should have phone numbers for both the current and new servicer so you may contact them with any questions.
I highly recommend that you contact your current mortgage servicer to verify the servicing transfer, new servicer and mailing address where your payments should be made from that point forward.
I recommend this because, unfortunately, there are scammers out there that have conned people into sending mortgage payments to an individual under the disguise of a mortgage servicing company. To be safe, always verify with your current mortgage servicer as to whether the servicing has been transferred and to whom.
Your Rights During the Transfer
Mortgage servicing transfer can be confusing and therefore you have some protection.
“for 60 days beginning on the effective transfer date of the servicing rights from your previous servicer to your new servicer, your new servicer cannot charge you a late fee or treat the payment as late if you sent it to you previous servicer on time or within the applicable grace period”
The terms of your mortgage during a servicing transfer can not change. This means the remaining amount of time on your mortgage, the interest rate and any other unique features of your mortgage can not change.
Do you have your mortgage set up to automatically come out of your checking account each month? If so, a servicing transfer will stop this from occurring and will require you to make a manual payment until the you can set up auto-debiting payment with the new servicer.
Overall, a mortgage servicing transfer is nothing to worry about but something to be aware of and understand. I hope I have provided you with the information you need to be informed if this happens to you.