What Does Transfer of
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
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
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.
How Does It Affect Your
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
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 Will You Be Notified.
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.
An Important Consumer Safeguard
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.
Where Do You Pay Your Next
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.
What Happens To Your
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
What About Insurance
Policies And Taxes.
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
Who Sends You Your End Of
The Year Tax Statement.
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.
Do You Have More
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
- 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