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Where Does My Loan Payment Go

November 14, 2019

Article from: Steve Crisci–MDC Financial Group

Many new homebuyers are surprised, once their purchase is complete, to find themselves in a financial relation­ship with an entity they did not choose, cannot fire, and with whom the partner­ship could be fleeting or endure for the life of their mortgage loan. That entity is part of an industry that operates in rela­tive obscurity, doesn’t advertise or even seek out individual customers. 

That’s not nearly as scary as it sounds. This relationship, in most cases, operates seamlessly, and is one that the home­owner will probably forget exists except when paying the mortgage. We are talk­ing about the loan servicer to whom the homeowner mails or otherwise transmits that monthly payment.

Servicing the mortgage used to be part of the overall lending operation. But a lot has happened to that business model. For various reasons, the big banks, which once did the bulk of servicing, are increasingly farming out the work. In turn, a whole industry has emerged, with many companies doing nothing other than that task. 

If Your Loan is Transferred…

You will get two letters, one from your current servicer at least 15 days before the transfer, and one from the new servicer within 15 days after the effective date. Obviously, you should not send a payment to the new address until you get both letters. Some scallywag might be waiting at a bogus P.O. box to collect your check.

Both notices must include the name and contact information for the new company, the date the current servicer will stop accepting payments, and the date the new one will start. There should be information about any optional insurance such as credit life or disability you might have and how to maintain coverage.

There should also be a statement confirming that the transfer will not affect any terms or conditions of your mortgage and an explanation of your rights and what to do if you have a question or complaint about the servicing of your loan.

If you don’t have an escrow account, the new servicer can’t force you to open one. There is a 60-day grace period in which no late fee can be charged if you mistakenly send a payment to the wrong servicer. If you have a dispute or complaint, you can notify the servicer in writing and expect a response within 60 days.

What Do I Need to Do?

A transfer does require some attention from you. If your payments are made electronically, they need to be rerouted. Your new servicer may contact your insurance agent to request a change in loss payee, but it is smart to check. If the servicer doesn’t have a binder in your file, they may assume the policy has lapsed and “force place” coverage.

After the effective date, compare your mortgage statement with your records. Make sure all taxes and insurance premiums have been made on time and principal and interest payments properly recorded. If you itemize, remember to look for two separate 1099 forms when you do your taxes the following year.

Keep the contact info of the departing servicer. In the future an escrow agent may need to obtain a discharge of even very old mortgages to close a sale or refinance.

So, if you get transfer letters (two of them), don’t worry; just welcome your new loan servicing partner. We’re betting you won’t notice any change.

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