March 19th, 2014 6:58 PM by Dan Marchiando
Federal Reserve rules went into effect in late 2009 and were made final in 2011, to help homeowners keep track of who owns their mortgage loan, and who to contact if they have loan servicing issues. This issue can be very confusing to borrowers, because borrowers often assume that the company that collects their monthly mortgage payment (the loan Servicer), is also the owner of their mortgage (the loan Investor). But in reality these two roles are usually split early in the life of the loan. Generally speaking, banks and mortgage bankers originate loans to borrowers, often through mortgage brokers like Paragon Mortgage. Their business model is creating new loans--not holding loans as an investment for 30 years. They will oftentimes sell the loan to an investor like Fannie Mae or Freddie Mac, often before the first mortgage payment is due. If the bank or mortgage banker is big enough to have an efficient and cost-effective loan servicing department (to collect the monthly payments and send monthly statements), then the bank will keep the responsibility to service the loan, but sell the loan to an investor. If not, then they will sell the loan to an investor, and sell the servicing right/responsibility to a company that specializes in servicing loans. In the past, this habit of selling the servicing of mortgages loans could happen all too frequently, leaving homeowners very frustrated with the constant changes. There has been considerable consolidation in the mortgage industry in the years since the start of the Great Recession in 2008, so I think that in the future, we will hopefully see less turnover of mortgage loan servicing.
What the New Rules Require
The new rules now require the company that purchases your mortgage as an investment (the Investor), to send you a letter within 30 days telling you of their ownership, the date the transfer occurred, and contact information should you need to contact them or their agent. These new rules only apply to a borrower's principal residence and do not apply to vacation, rental, or business property loans.
What About the Loan Servicing?
If the servicing of your loan has also been transferred, then the current loan servicer is required (by different and older rules) to send you a letter telling you who the new loan servicer will be, and their contact information. This letter is sometimes called a "goodbye" letter. The new loan servicer is also required to send you a letter confirming that they have now acquired the responsibility to collect your mortgage payment for the loan investor. This letter is sometimes called a "hello" letter. Sometimes both of these legally-required notices are combined into a single letter addressed from both servicers. There is a 60-day grace period after the transfer: during this time you cannot be charged a late fee if you mistakenly send your mortgage payment to the old servicer.
If you have any questions after reading this, please don't hesitate to give me a call or shoot me an email--I'm happy to help and I'm never too busy for your questions. And as always, I greatly appreciate your referral of friends and family.
Thanks for your interest,
Dan Marchiando, a California mortgage broker and loan officer.