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WHEN YOUR HOME LOAN IS SOLD

Excerpted from an article by Benny L. Kass for realtytimes.com

“QUESTION:  We have a mortgage with the same lender for several years, and have just received notification that our loan has been sold to some other lender.  Should this be a concern to us?:  Can the new lender change any of the terms or conditions of our existing loan?  How do we know for sure that the new lender is in fact legitimate?…

ANSWER:  Every day these questions arise.  Lenders have been selling their loans for years in the secondary mortgage market.  Organizations such as the Federal National Mortgage Association (FannieMae (http://www.fammiemae.com/portal/index.html) or the Federal Home Loan Mortgage Corporation (FreddieMac (http://freddiemac.com) purchase large packages of loans from lenders.  Oversimplified, they buy these loans at a discount, thereby giving the individual lender more cash to be available to generate new mortgage loans.  To some extent, selling mortgage loans added to the mortgage meltdown problems this country faced just a few year ago.  The originating lender usually (although not always) services the loan..this means that you, the borrower, will continue to make your monthly payments to that lender, even if they do not current own the papers.  The servicing lender gets a small fee for their work.

Many lenders for years did not use the secondary mortgage market, but rather kept mortgage loans in their own portfolio.  However, selling a package of loans is one way of putting cashflow back into the mortgage lender’s business.  Thus most if not all of the mortgage lenders in the US are involved in selling loans to third parties.

There have been problems with selling loans in the past….as a result of mortgage scams, in 1990, Congress determined to regulate the assignment, transfer or sale of mortgage loans.  As part of the National Affordable Housing Act, certain provisions were added to the Real Estate Settlement Procedures Act (RESPA)….Here are some of the protections afforded to individual borrowers whose loan has been sold, transferred or assigned to a new lender.

  • At the time a potential borrower applies for a mortgage loan from a federally regulated lender, that lender must disclose to the borrower certain disclosures….including the effective date of the transfer, the name, address and telephone number of the transferee, and appropriate contact information.  This will give the borrower the opportunity to ask questions and confirm the transfer.
  • The disclosure statement must state that the transfer does not affect any term of the security instrument other than the servicing provision.  This means that while the mortgage payments can be sent to either the original lender or the transferee lender, the basic terms of your note and deed of trust cannot be changed.  They remain in full force and effect whether the original lender holds your paper or some third party does.
  • Congress was concerned about payments made during the transition period when a loan is transferred.  The 1990 law specifically provides a 60-day grace period if the borrower misdirects payments.  For 60 days from the effective date of the transfer, as long as the borrower makes the payment on time in accordance with terms of the note, no late fee can be charged.  The payment cannot be deemed late for any purpose whatsoever, even if that payment is misdirected; if you send your payment on time to the old lender when it has been transferred to a new lender, for the first 60 days no penalty or late fees can be imposed on you.  This is important, since it also means that neither the old lender nor the new lender can report you as being late or delinquent to a credit reporting bureau.
  • Congress also created a complaint resolution mechanism in the 1990 law.  If you, the borrower, have a question or a complaint about transfer of your loan, you have the right to send a written request to the lender.  In order for the complaint resolution mechanism to be effective, you have to send a separate letter, and not merely jot a note on your mortgage payment coupon when you return your check.  Your lender must take action or respond to your letter within 20 business days of receiving your letter.  The lender has 60 business days from the date of receipt of the request to either correct the problem and given the borrower notice that the problem has been corrected, or give reasons in writing why the account is correct or the information requested by the borrower is unavailable.
  • Finally, Congress added incentives to make sure that lenders would comply with this new law.  If they fail to comply, an individual consumer can recover any actual damages….limited to $1,000 per individual consumer.

These are obviously technical issues (and the above info is a simplification)….but the bottom line is that you really do not have to worry about your loan if your current lender sells or transfers your loan to another lender.  Obviously, you want to make sure that this is not a scam, and that it is a legitimate transfer.  Contact both lenders and make sure that you have something in writing from both the old and the new lender before you send your next payment check.  You can also file a formal complaint with the Consumer Financial Protection Bureau (http://.www.consumerfinance.gov/).

Remember – this is a two-way street.  No lender can change the terms of your loan, but neither can you.  The sale or transfer of your loan should not be considered in any way as an excuse on your part to delay the normal payment beyond its due date.”

SOURCE:  Benny Kass is senior partner with the Washington, DC law firm of Kass Mitek & Kass, PLLC and a specialist in real estate legal matters.   IMAGE:  compiclaims.com

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