Wednesday, May 28, 2008

Help, My Home Loan Was Just Sold!

We’ve all received a similar letter notifying us that the servicing for our home mortgage has been transferred to a different company. These letters create feelings of worry and concern among many home owners; and for good reason.

During the past few months lenders nationwide have imploded and the loans they were servicing were quickly transferred to other loan servicing companies. What should be a streamlined process has, in some cases, become a living nightmare for good people who pay their mortgage on time every month.

One bankrupt lender, American Home Mortgage Investment was accused by Freddie Mac of failing to pay property taxes and insurance premiums on over 4,000 home mortgages valued at nearly $800 million. Freddie Mac warned home owners that their lender’s failure to pay for these services out of their escrows could result in lapsed coverage and delinquent tax liabilities, penalties and even foreclosures. This situation was eventually resolved and the potential damage was minimized, but it serves to illustrate to every home owner the importance of being vigilant about your home mortgage.

You mortgage servicer will most likely change: the company who originates your home loan more than likely will quickly sell it to another investor who may or may not have their own loan servicing company. The servicer is the entity you make your mortgage payment payable to. If you’re paying 6% for your home loan, a servicer may take .25% of that interest rate as a fee and pass on the remaining 5.75% to the investor.

A change of servicer does not change your obligation: the note you signed at closing spells out the interest rate and the terms of your loan and if you fail to abide by the terms of that note, whoever owns your note can foreclose.

When your servicer changes expect two letters: the first letter will be a “goodbye” letter. Not unlike a “Dear John” letter your previous servicer send this letter to inform you that your loan has been sold and future payments will be made to a new servicer. You have no choice in this matter but there are a few things you can do to protect yourself. The second letter is a “hello” letter from your new loan servicer.

Make sure you send the payment to the correct address: throw away old envelopes, change the payee information in your computer, update your automatic bank draft account information, etc. By federal law any payments sent to the wrong address in the 60 days after the transfer aren’t supposed to be counted as late. At the same time, it’s probably easier to make sure the payment is made to the correct servicer than it is to get late payments removed from your credit report.

Verify that your property taxes and home owners insurance are paid: some home owners pay these expenses on their own, but many mortgages have escrow accounts set up to pay these bills when they are due. If your home loan has an escrow account it is still your responsibility to verify that your property taxes are paid on time and that you home owners insurance is current and up to date.

Know how to get help: if you aren’t getting the help you need from your loan servicing customer service department, send a written complaint to the customer service department. But make sure this letter is sent separate from your mortgage payment. Also send it certified, return receipt requested to establish a paper trail.