By Benny L. Kass
Saturday, April 19, 2008
Q: We refinanced our home loan in March with an online 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 it.
I contacted the original lender and was told that the loan was not sold. The representative said that if and when that occurs, we would receive a "goodbye letter." That has not happened.
We now have May payment invoices from both lenders and only two weeks to go until the payment is due. We contacted the second lender. It insists that it owns the loan. What should we do? We do not want this to hurt our good credit rating.
A: Until you get notices 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 options. It can keep the loan in-house -- called a "portfolio" loan -- or it can sell or assign it to an investor.
Why do lenders sell their loans? Many do not have the cash to make all the loans they would like. To get more cash, they sell loans and use the proceeds to make more loans.
The original lender makes money in two main ways. It charges upfront fees, and it may be paid for servicing loans on behalf of the investors. A loan servicer collects your monthly mortgage payments, including escrows for taxes and insurance.
Over the years, there have been serious problems with these mortgage sales. And now, in a turbulent mortgage market, the problems are escalating. There have been a number of documented fraud cases, in which an unscrupulous person obtained the names and addresses of homeowners, which are publicly available, and sent them letters saying that, effective immediately, loan payments should go to them.
You would be surprised at the number of gullible people who blindly follow such dubious instructions without any investigation.
After one or two months of receiving mortgage checks, the scamster folds up and moves on to another locale.
As a result of such mortgage scams, Congress in 1990 started regulating the assignment, transfer and sale of mortgage loans.
When a potential borrower applies for a mortgage from a federally regulated lender, the lender must disclose its policy on assigning or selling loans.
If a mortgage lender does assign, sell or transfer your loan, both the transferor (your original 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 the appropriate contact numbers at both the transferor's and transferee's offices. This information allows the borrower to ask questions and confirm the transfer.
More important, this disclosure must state that the transfer does not affect any terms of the mortgage other than the servicing provision.
This means that although your loan is 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.
The law also addresses the treatment of payments during the transition. There's a 60-day grace period if the borrower misdirects payments. During that time, as long as the borrower makes the payment on time in accordance with the terms of the note, no late fee can be charged. This is important because it means that neither the old lender nor the new can report you to a credit bureau as being late or delinquent.
The law also provides for a complaint-resolution mechanism. If you, the 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. (Note that for the complaint-resolution mechanism to be effective, you have to send your correspondence separately. Don't just jot a note on your mortgage payment coupon when you send your check.)
Your lender must either take action or respond to your letter within 20 business days of receiving it. Furthermore, the lender has 60 business days from the date of receipt of the request to correct the problem and give the borrower notice that the problem has been corrected, or to give reasons in writing why the account is correct or the information requested is unavailable. The lender is required to conduct an investigation before it responds to your letter.
If a lender violates the law, a consumer can recover actual damages, and any additional damages that a court might allow if the court finds that there is a pattern or practice of noncompliance. The damages are limited to $1,000 per borrower. And if the borrower sues, the court can award the payment of reasonable legal fees if the borrower prevails.
The bottom line is that you do not have to worry about your loan if your current lender sells or transfers it to another lender. Obviously, you want to make absolutely sure that the transfer is legitimate.
The normal procedure these days is for the borrower to get a joint letter from the old and the new lenders, advising that the loan has been sold and saying where the monthly payments should now be sent.
In your situation, because you have not received a letter from your first lender, you should continue to pay that lender. But advise the company that is claiming it owns your loan about what you are doing. I also suggest that you send a copy of that letter to the first lender, as well as to your state's consumer protection office.
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com.
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