What to Do When Your Mortgage Is Sold
You just received a letter from your mortgage loan servicer (the company that processes your mortgage payments) informing you that your home loan servicing will be transferred. It states that your mortgage is sold by your existing lender to a different financial institution.
When your mortgage loan is sold to another lender
That might not be a big deal -- you'll probably just make your payment to a different online account or mail it to a different address. Mortgage lenders sell home loans all the time with homeowners barely noticing. And a new lender or servicer can't legally change your interest rate, loan terms or anything else contained in your loan agreement.
However, changing lenders or loan servicers could cause processing errors -- or worse. So you'll need to apply a few "best practices" when you get a request to make your payments to a new company or address.
Mortgage lenders vs mortgage servicers: what's the difference?
You may encounter several different entities when you obtain a home loan. Or just one.
- Originators process your application. They may fund the loan with a credit line and then sell it to a lender, or simply take care of the origination work for the lender, which funds the loan
- Funding is the actual transfer of money from the lender to you. Some lenders originate and fund their own loans
- Servicing is the ongoing management of the loan -- collecting and tracking payments, paying impounds for taxes and insurance (also called escrows), if you have them, and generating statements. Some companies only service loans for other lenders
And some companies do it all -- from origination to funding to servicing. If that's important to you, pay attention when completing your mortgage paperwork. The originator must provide a Mortgage Servicing Disclosure Form, which indicates whether the loan "may" be sold, "will" be sold, or "will not" be sold.
If you're unclear about who your servicer is, the mortgage industry runs an organization called the Mortgage Electronic Registration Systems (MERS). And there's a lookup tool on its website that should tell you.
Related: Can I Separate My Taxes and Insurance From My Mortgage Payment?
Avoid fraud
Just because you receive a letter stating that your mortgage is sold doesn't mean it actually has been or will be.
Any fraudster can mock up a letter that looks as if it comes from your lender or mortgage servicer. And can instruct you to send payments to his or her bank account.
If a big bank closure, sale or merger is in the news, thieves may be inspired to send out mass mailings to anyone who might be a borrower with either institution. And innocent borrowers can lose their homes while funding con artists' tropical retirements. So don't go along with their instructions without checking.
The best way to avoid fraud is to independently verify the information with your current servicer. That means calling the number on your statement or contacting the company directly on its web site. Do NOT be lazy and just click the link in an email or call a phone number listed on the "hello" or "goodbye" letters.
How the transfer works
At least 15 days before your mortgage changes hands, you should receive two documents:
- A letter from your current servicer, commonly referred to as a "goodbye" letter
- A letter from your new servicer, commonly referred to as a "hello" letter
Both documents should provide you with the same information about the transfer, including the name, address and phone number of the company purchasing your loan. Both letters should also explain your rights and who to contact with questions or complaints about the servicing of your loan.
The "hello" letter from your new loan servicer should tell you where and when to send your monthly payment.
Sometimes, you might receive only one letter covering the "hello" and "goodbye." It's rare, but if both lenders use the same servicing company, it's possible to get just one letter with a legitimate transfer. Just don't ever take it at face value.
Related: Avoid Mortgage Fraud With These Tips
When things go wrong
Assuming that you have verified the legitimacy of the transaction, you have little to worry about when your loan is sold.
However, processing payments and managing mortgage accounts is a complicated business. And things can go wrong when accounts are transferred between servicers. Most commonly, these arise when the two servicers' IT infrastructures are incompatible.
If your mortgage payment includes impounds (also called "escrows") for property taxes, homeowners insurance or other items, that's where you're most likely to experience a hiccup. Once you have made a payment to your new lender, check your loan balance, how the payment was applied, and your impound / escrow account. To view your escrow account, you can review statements, call the lender or check your balances online.
The switch between loan servicers should be relatively smooth. But to protect you during the transfer, RESPA requires lenders to provide a 60-day grace period from the date your loan servicing transfers. This means your new servicer cannot charge you a late fee or report the payment as late if you sent it to your previous servicer on time or within the applicable grace period.
Related: How to find out who owns your mortgage
Who to contact when there's a problem
The Consumer Financial Protection Bureau (CFPB) recommends that you send both your old and new loan servicers an information request or a notice of error if you have a problem. For example, you should send a notice if:
- The old loan servicer did not send a notice of transfer (the "goodbye" letter)
- You believe the new servicer isn't applying your payments correctly
- There is an application for loss mitigation with your old servicer and your new servicer isn't following through
This information page includes sample letters you can send. And following this advice should put you in a stronger position should you end up in a dispute with your servicers.
But, of course, most transfers go relatively smoothly.