| At closing, your mortgage lender
must tell you who will be servicing, or administering,
your mortgage loan. In other words, who do you
send your mortgage payment to? Who do you contact
with questions about the loan?
Traditionally, the mortgage banker will service
the loan for the life of the mortgage, on behalf
of the investor. However, the servicing may be
handled by a third party, not the lender who originated
and approved the loan.
How the mortgage market works
It may help to understand more about the mortgage
market. As the Mortgage Bankers Association of
America explains:
• The process begins in the primary mortgage
market where bankers use short-term borrowings
to make or originate mortgage loans to home buyers.
• These loans are then grouped together
for sale in packages to outside investors, usually
large institutions.
• The proceeds of the sale are used to pay
off the initial bank loan and replenish the lending
capital, so the cycle can start all over again.
• There also is a secondary mortgage market
where pools of residential loans are sold and
resold after origination.
• Participants in the secondary market include
thrifts, commercial banks, life insurance companies,
pension and mutual funds, and institutions such
as the Federal National Mortgage Association (Fannie
Mae), the Government National Mortgage Association
(Ginnie Mae) and the Federal Home Loan Mortgage
Corp. (Freddie Mac).
How servicing works
Your mortgage lender, or a designated third party,
is charged with administering your loan. It is
important to keep good records of your dealings
with the mortgage servicer because the loan servicing
also can be sold. (More on that below.)
• Servicing involves collecting and processing
the monthly mortgage payment, which includes amounts
for principal and interest on the loan, plus amounts
for hazard insurance premiums and property taxes
that are maintained in "escrow" accounts.
The mortgage lender or servicer has custody of
the escrow until the tax and insurance payments
are paid. It is the responsibility of the lender
to make these payments on time.
• At the start of each year, the mortgage
lender must let borrowers know what portion of
their mortgage payments for the previous year
were applied to principal, interest, taxes and
insurance. The lender lets the borrower know if
any adjustments in payments are needed to cover
insurance and taxes for the next year.
• The servicer also forwards the proceeds
to investors who have purchased the mortgage loans
and acts as the investors' representative if any
problems arise with the loan.
• According to the Mortgage Bankers Association
of America, if homeowners become delinquent in
payments, the mortgage lender is responsible to
counsel and assist homeowners in overcoming the
delinquency. A "forbearance," or deferral
of principal and interest payments, may be extended
to help borrowers work out their difficulties.
If the loan becomes seriously in default, foreclosure
may be necessary to protect the investor's interest
in the property and salvage the borrower's equity,
if any.
What if your mortgage servicing is sold
The servicing of your mortgage may be transferred
or sold. Here's what should happen, and what to
watch out for:
• You must be officially notified in writing
of the change by both your original servicer and
the new servicer.
• You should receive complete details: date
transfer takes effect, name, address and toll-free
numbers of the new servicer.
• You must be informed if any of the terms
on your homeowner's insurance will change.
• The new servicer must honor any terms
or conditions of your original mortgage contract,
other than those directly related to servicing
the loan.
• There is a 60-day grace period during
the transfer where you cannot be charged a late
fee if you mistakenly send the mortgage payment
to the old servicer.
• Put any questions or disputes you have
with the new servicer in writing. Continue to
make payments while you settle the dispute. Otherwise,
you might run the risk of being considered in
default
• Federal law requires the servicer to investigate
and make any necessary corrections within 60 business
days.
After your mortgage servicer has changed, take
an careful look at your mortgage statements. Watch
for any mistakes. Make sure taxes and insurance
have been paid on time. And, of course, keep any
letters, canceled checks or other documents relating
to your mortgage and payments, so that you have
the paperwork to back you up in case of any dispute.
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