November 10th, 2014 9:51 AM by Jackie A. Graves
Question: We refinanced
our home loan in March with an on-line mortgage lender. Within a couple of
weeks, we received a letter from another mortgage company advising us that our
May payment was to be made to them. A May payment invoice was included. I
contacted the original lender, and was told that the loan was not sold. They
said if and when that happens, we would receive a "goodbye letter"
which has not arrived. We now have May payment invoices from both lenders, and
only 2 weeks to go until the first payment is due. We contacted the second
lender and they still insist they now own the loan. What should we do? We do
not want this to impact on our good credit rating.
Answer: It will not be
any consolation to you, this appears to be a common problem. However, there is
a federal law that protects you. The short answer: until you get a letter from
both lenders advising that your loan has been sold (or assigned), you should continue
to pay the first lender.
When you get a
mortgage loan, your lender has two alternatives. They can keep the loan in
house -- called a "portfolio" loan -- or they can sell or assign it
to an investor. And as we know, one of the factors that led to the "mortgage
meltdown" several years ago was the securitization of loans -- ie where
loans were litterly "bundled" together and sold to an investor -- who
could be in the US or anywhere else in the world.
Why do lenders
sell their loans? Many mortgage lenders do not have millions of dollars in
their bank account to enable them to make all of the loans they would like to
do. In order to get more cash, they sell the loan for a discount to an
investor, thereby enabling them to make more loans.
lender makes its money in two basic ways. First, by charging various fees to
the borrower -- such as loan origination (points) or underwriting. If the
lender is a mortgage broker, it will also get a fee, which in the trade is
called a "yield spread premium" (YSP).
Your lender also makes money by servicing
your loan. That means that although the original lender may no longer own the
loan, it continues to collect your monthly mortgage payments (including escrows
for taxes and insurance) and are paid a servicing fee by the then current
Over the years,
there have been serious problems with these mortgage sales. There have been a
number of documented fraud cases, whereby an unscrupulous individual obtains
the names and addresses of homeowners, and sends them a letter advising the
borrower that effective immediately the loan payment should go to this
unscrupulous lender. The names and addresses of borrowers are generally
publicly available from the Land Records where the deeds of trust are recorded.
following scenario. You have a loan with the ABC mortgage company, which is a
legitimate lender. All of a sudden, you get a letter from the XYZ company,
advising you that effective immediately you are to make your new mortgage
payment to the XYZ company.
You would be
surprised at the number of gullible people in the United States that blindly
follow the XYZ company's instructions, without any investigation.
After one or two
months of receiving mortgage checks, the XYZ company folds its camp. It moves
on to another state, and the scam begins anew.
As a result of
these mortgage scams, in 1990, Congress regulated 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).
The law is quite
complex, but oversimplified here are some of the protections afforded to
individual borrowers whose loan has been sold, transferred or assigned to a new
At the time a
potential borrower applies for a mortgage loan from a federally regulated
lender, that lender must disclose to the borrower their policy on assigning or
selling loans. If a mortgage lender does in fact assign, sell or transfer your
loan, both the transferor (your current lender) and the transferee must make
certain disclosures. These disclosures include the effective date of the
transfer, the name, address and telephone number of the transferee, and an
appropriate contact number at both the transferor's and transferee's offices. This
will afford the borrower the opportunity to ask questions and confirm the
this disclosure statement must state that the transfer does not affect any term
of the security instrument other than the servicing provision.
This means that
although your loan has been sold, and you must start paying the new lender, the
basic terms of your note and deed of trust cannot be changed. Specifically,
your interest rate terms cannot be changed. They remain in full force and
effect regardless of who holds your legal documents.
Congress also 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
the 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. In other
words, 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 other late
charge can be imposed on you. This is very 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.
created a complaint resolution mechanism in the 1990 law. If you, the consumer
borrower, have a question or a complaint about the transfer of your loan, you
have the right to send a written request to the lender. Please note that in
order for the complaint resolution mechanism to be effective, you have to send
a separate correspondence, and cannot merely jot a note on your mortgage
payment coupon when you return your check.
Your lender must
either take action or respond to your letter within 20 business days of
receiving your correspondence. Furthermore, the lender has 60 business days
from the date of receipt of the request to either correct the problem and give
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. The lender is required to conduct an investigation before it
responds to your letter.
added incentives to make sure that lenders would comply with this new law. If a
lender violates the law, an individual consumer can recover any actual damages,
and any additional damages that a court might allow if the court finds that
there is a pattern or practice of non-compliance with the RESPA provisions. The
damages are limited to $1,000.00 per individual consumer. Furthermore, if the
consumer files a lawsuit in court, the court can award reasonable attorney's
fees if the consumer prevails.
obviously technical issues. 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 absolutely 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 mortgage payment check.
procedure nowadays is for the borrower to get a joint letter from the old and
the new lender, advising that the loan has been sold and where the monthly
payments should now be sent.
In your situation,
since you have not received a letter from your first lender, you should
continue to pay that lender. But advise the new lender in writing what you are
doing, and I also suggest that you send a copy of your letter to the old
lender, as well as to the consumer protection office of your State's attorney
By Benny L. Kass |
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