Your Rights After Your Lender Transfers Your Home Loan

If you’re a homeowner, you might not realize that after you sign your mortgage, your lender will likely sell your mortgage or transfer your home loan. This helps mortgage companies stay in business and make new loans. Mortgage sales are allowed under federal law and are common in the lending industry. A mortgage sale won’t change your rates or mortgage contract, but it might affect you or your credit history if you don’t get the proper notices or if the new or old mortgage servicer makes a mistake. 

Homeowners have rights after a lender transfers their home loan. We’ll help you learn about those rights and gain some knowledge on mortgage sales and the home mortgage industry.

What’s a Mortgage Sale?

Mortgage lenders make a profit on the interest from your home loan, but interest can take 10-30 years or more to collect. To keep the cash flow moving, mortgage lenders will sell mortgages to private investors or government sponsored enterprises (GSEs). You may have heard of two GSEs — Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, and Fannie Mae, aka the Federal National Mortgage Association. When the mortgage is sold, the mortgage company will get cash, a bond, or another type of payment in exchange for the loan. This gives the mortgage company the capital it needs to make loans to other borrowers.

A mortgage sale can happen shortly after you sign a loan, or it could happen years later. Your mortgage could go through several different sales transactions years apart during the life of your mortgage.

The process happens rather quietly, and if you don’t pay attention to your mail you might not even know your mortgage was sold. It’s important to know who holds your mortgage because you’ll need to know who to contact to request information or ask for a loan modification. It’s also a good idea to check that your payments were applied correctly on the correct dates after a mortgage sale in case any errors or software glitches occurred during the transaction.

Different Parties Involved in the Mortgage Servicing Industry

It’s easier to learn about mortgage sales when you know the parties that are involved. Here are the main players:

• Mortgage lender or mortgage owner: This is the company that owns your mortgage. The mortgage owner is also known as your creditor. It could be the company that originally lent you the money for your property, or it could be a different company that bought your mortgage. If you need to find out who owns your mortgage, you can contact your mortgage servicer for information. You might be able to find information on the servicer’s website.

• Mortgage servicer, loan servicer, or servicing company: This is the company that manages the mortgage. The servicer deals with your monthly payments, communicates with borrowers, and manages escrow accounts and foreclosure proceedings. A mortgage lender can service its own mortgage and be both the mortgage owner and servicer, but this often doesn’t happen. Also, even if your mortgage changes hands, your mortgage servicer might stay the same. A mortgage servicer can also have a sub-servicer to help out. 

You can find the contact information for your mortgage servicer on your mortgage statement. If you can’t find your mortgage statement, you can look up information on the MERS (Mortgage Electronic Registration System) website or call the MERS toll-free number 1-888-679-6377.  MERS is a tracking system for mortgages and mortgage servicers.  

• Investor: This is the company that buys mortgages. Freddie Mac and Fannie Mae are mortgage investors.

Mortgage Sale Consequences for Borrowers

If you don’t know who is servicing your mortgage loan, you could end up sending your monthly mortgage payment or past-due amounts to the wrong company and the payment could show up late. Making a late payment could result in late fees, and it might even hurt your credit report, depending on how late it is and the terms of your contract.

If your mortgage has a fixed interest rate, you don’t have to worry about your interest changing with a mortgage sale. If you have an adjustable-rate mortgage (ARM), your interest rate could change whether your mortgage stays with the current owner or is sold to a new owner. Generally speaking, your loan terms don’t change when your mortgage is sold.

Borrowers’ Rights When a Loan Owner Changes

The Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act, and federal laws on banks and banking protect borrowers by setting notice requirements and a 60-day grace period.

Required Notices

When your mortgage owner changes hands, you should receive a notice of transfer of ownership because it’s required by law. The new owner (the new lender) may also be called an assignee. Federal law (15 U.S. Code § 1641) requires the new owner to send this notice within 30 days of the mortgage sale. The notice must include the following information:

• The name, address, and telephone number of the new owner

• The date the mortgage transfer took place

• The location where the ownership is recorded

• Contact information for the person or company acting on behalf of the new owner

• Other relevant information pertaining to your loan contract

When your mortgage servicer changes hands, you should receive a notice of servicing transfer from your old servicer and your new servicer. Generally, your old servicer must give you notice at least 15 days before the date the new servicer takes over. Your new servicer must provide you with a notice within 15 days after they take over the account. Sometimes servicers work together to send one combined notice, but that must be sent at least 15 days before the transfer.

60 Day Grace Period

It could get confusing to figure out where to send your loan payments or make repayments when your mortgage is transferred or sold. You’ll get a 60-day grace period while the loan is being transferred. During the grace period, the new lender can’t collect late fees or declare your loan delinquent if you miss payments.

To ease the confusion during a mortgage transfer, always keep track of your notices and loan documents. So long as you know who it is, pay the new servicer. This eliminates the chance of any mishaps, such as a late or lost payment. The older servicer is supposed to forward the payment to the new servicer, but things can get messy when mortgages change hands. 

If for some reason your payment doesn’t get credited property, be sure to notify your new mortgage lender and servicer in writing. Errors can affect your credit report and credit score. You can also file a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB is tasked with ensuring mortgage companies stay honest. When you file a complaint, it helps the CFPB see which companies aren’t complying with the law. These companies can be fined or prohibited from pursuing collection activity to recover past-due payments.

If you made a forbearance plan, make sure it’s recorded correctly with the new lender. If you were in the process of a foreclosure, short sale, bankruptcy, or deed-in-lieu of foreclosure, make sure the mortgage owners and servicers have stayed the same during the process. If not, you’ll want to triple-check the account information and contact an attorney if there are any discrepancies, especially if a mortgagor is about to foreclose on your house. If you have a second mortgage or are trying to refinance, review your records and compare your mortgage contract and escrow account to make sure your payments and balances align.

Let's Summarize...

Many people don’t realize their mortgages can be sold after they sign a contract. Your mortgage lender, mortgage servicer, and mortgage investors can, and often do, change even after you sign a contract for your home loan. You are required by law to receive notices. Pay attention to those notices from your mortgage company, and make sure your payments are reaching the correct company at the correct time. Your mortgage is worth paying attention to because managing your mortgage now will strengthen your financial security and the comfort of your homeownership in the future.