Mortgage Servicing: Making Sure Your
Payments Count
When you apply for a home mortgage,
you may think that the lender will hold and service
your loan until you pay it off or you sell your house.
That's often not the case. In today's market, loans
and the rights to service them often are bought and
sold.
A home may be one of the most expensive purchases you
ever make, so it's important to know who is handling
your payments and that your mortgage account is properly
credited. The Federal Trade Commission (FTC) wants you
to know what a mortgage servicer does and what your
rights are.
Mortgage Servicers: Their Responsibilities
to You
A mortgage servicer is responsible
for collecting your monthly loan payments and crediting
your account. A servicer also handles your escrow account,
if you have one.
Escrow Accounts
An escrow account is a fund held by
your servicer into which you pay money to cover charges
like property taxes and homeowners insurance. The escrow
payments typically are included as part of your monthly
mortgage payments. The servicer pays your taxes and
insurance as they become due during the year. If you
do not have an escrow account, you are responsible for
paying your taxes and insurance and budgeting accordingly.
The Real Estate Settlement Procedures
Act (RESPA), enforced by the Department of Housing and
Urban Development, is the major law covering escrow
accounts. If your mortgage servicer administers an escrow
account for you, the servicer is generally required
to make escrow payments for taxes, insurance, and any
other charges in a timely manner. Within 45 days of
establishing the account, the servicer must give you
a statement that clearly itemizes the estimated taxes,
insurance premiums, and other anticipated charges to
be paid over the next 12 months, and the expected dates
and totals of those payments.
Under RESPA, the mortgage servicer
also is required to give you a free annual statement
that details the activity of your escrow account. This
statement shows your account balance and reflects payments
for your property taxes, homeowners insurance, and other
charges.
Transfer of Servicing
If your loan is about to be sold,
you generally get two notices: one from your current
mortgage servicer; the other from the new servicer.
Usually, your current servicer must notify you at least
15 days before the effective date of the transfer, unless
you received a written transfer notice at settlement.
The effective date is when the first mortgage payment
is due at the new servicer's address. The new servicer
must notify you within 15 days after the transfer has
occurred.
The notices must include:
- the name and address of the new servicer.
- the date the current servicer will stop accepting
your mortgage payments.
- the date the new servicer will begin accepting
your mortgage payments.
- toll-free or collect-call telephone numbers, for
the current and new mortgage servicer, for information
about the transfer.
- whether you can continue any optional insurance,
such as credit life or disability insurance; what
action, if any, you must take to maintain coverage;
and whether the insurance terms will change.
- a statement that the transfer will not affect any
terms or conditions of your mortgage, except those
directly related to the servicing of the loan. For
example, if your contract says you were allowed to
pay property taxes and insurance premiums on your
own, the new servicer cannot demand that you establish
an escrow account.
There is a 60-day grace period after
the transfer: during this time you cannot be charged
a late fee if you mistakenly send your mortgage payment
to the old servicer. In addition, the fact that your
new servicer may have received your payment late as
a result cannot be reported to a credit bureau.
Posting Payments
Some consumers have complained that
they've been charged late fees, even when they know
they made their payments on time. To help protect yourself,
keep good records of what you've paid, including any
billing statements, canceled checks, or bank account
statements. You also may check your account history
online if your servicer's Web site has this feature.
If you have a dispute, continue to make your mortgage
payments, but challenge the servicing in writing (see
Sample Complaint Letter to Lender), and keep a copy
of the letter and any enclosures for your records. Send
your correspondence by certified mail, and request a
return receipt. Or send it by fax, and keep a copy of
the transmittal confirmation.
Force Placed Insurance
It's important to maintain the required
property insurance on your home. If you don't, your
servicer can buy insurance on your behalf. This type
of policy is known as force placed insurance; it usually
is more expensive than typical insurance; and it provides
less coverage. The primary purpose of a force placed
policy is to protect the mortgage holder, not the property
owner.
Review all correspondence you receive
from your mortgage servicer. Your mortgage servicer
may request that you provide a copy of your property
insurance policy. Respond promptly to requests regarding
property insurance, and keep copies of all documents
you send to your mortgage servicer.
If you believe there's a paperwork
error and that your coverage is adequate, provide a
copy of your insurance policy to your servicer. Once
the servicer corrects the error, removes the force placed
coverage, and refunds the cost of the force placed policy,
make sure that any late fees or interest you were charged
as a result of the coverage also are removed.
Fees
Review your billing statements carefully
to make sure that any fees the servicer charges are
legitimate. For example, the fees may have been authorized
by the mortgage contract or by you to pay for a service.
If you do not understand what the fees are for, send
a written inquiry and ask for an itemization and explanation
of the fees. Also, if you call your mortgage servicer
to request a service, such as faxing copies of loan
documents, make sure you ask whether there is a fee
for the service and what it is.
Inquiries and Disputes
Under RESPA, your mortgage servicer
must respond promptly to written inquiries, known as
qualified written requests (see Sample Complaint Letter
to Lender). If you believe you've been charged a penalty
or late fee that you don't owe, or if you have other
problems with the servicing of your loan, contact your
servicer in writing. Be sure to include your account
number and clearly explain why you believe your account
is incorrect. Your inquiry should not be just a note
on the payment coupon supplied by your servicer, but
should be sent separately to the customer service address.
Within 20 business days of receiving your inquiry, the
servicer must send you a written response acknowledging
it. Within 60 business days, the servicer either must
correct your account or determine that it is accurate.
The servicer must send you a written notice of the action
it took and why, along with the name and telephone number
of someone you can contact for additional assistance.
Do not subtract any disputed amount from your mortgage
payment. Some mortgage servicers might refuse to accept
what they consider to be partial payments. They might
return your check and charge you a late fee, or claim
that your mortgage is in default and start foreclosure
proceedings.
Sample
Complaint Letter to Lender
The following is a sample qualified written
request from you, the borrower, to a lender. Use
this format to address complaints under the Real
Estate Settlement Procedures Act (RESPA).
Attention Customer Service:
Subject: Your loan number
Your Name
Your Address
Your City, State, Zip Code
This is a “qualified written
request” under Section 6 of the Real Estate
Settlement Procedures Act (RESPA).
I am writing because:
Describe the issue or the question
you have and/or what action you believe the lender
should take.
Attach copies of any related
written materials.
Describe any conversations with
customer service regarding the issue and to whom
you spoke.
Describe any previous steps
you have taken or attempts to resolve the issue.
List a day time telephone number
in case a customer service representative wishes
to contact you.
I understand that under Section
6 of RESPA you are required to acknowledge my
request within 20 business days and must try to
resolve the issue within 60 business days.
Sincerely,
Your name |
Fair Debt Collection
By law, a debt collector is a person
who regularly collects debts owed to others. Your mortgage
servicer is considered a debt collector only if your
loan was in default when the servicer acquired it. If
that's true, you have additional rights that you can
read about in the FTC's brochure "Fair Debt Collection."
Your Credit Report
Many mortgage companies provide information
about your payment history to credit bureaus, companies
that maintain and sell consumer credit reports —
which contain information about your credit payment
history — to other creditors, employers, insurers,
and businesses. Both the credit bureaus and the information
provider have responsibilities for correcting inaccurate
or incomplete information.
If you believe that your mortgage
servicer has provided inaccurate information to a credit
bureau, contact the credit bureau and the servicer.
Tell the credit bureau in writing (see Sample Dispute
Letter to Credit Bureau) what information you believe
is inaccurate. Include copies (NOT originals) of documents
that support your position. In addition to providing
your complete name and address, your letter should clearly
identify each item in your report you dispute, state
the facts, and explain why you dispute the information,
and request deletion or correction. You may want to
enclose a copy of your report with the items in question
circled. Send your letter by certified mail, return
receipt requested, so you can document what the credit
bureau received. Keep copies of your dispute letter
and enclosures.
Credit bureaus must re-investigate
the items in question — usually within 30 days
— unless they consider your dispute frivolous.
They also must forward all relevant information you
provide about the dispute to the information provider.
After the information provider receives notice of a
dispute from the credit bureau, it must investigate,
review all relevant information provided by the credit
bureau, and report the results to the credit bureau.
If the information provider finds the disputed information
to be inaccurate, it must notify all national credit
bureaus so they can correct this information in your
file. Disputed information that cannot be verified must
be deleted from your file.
- If your report contains erroneous information,
the credit bureau must correct it.
- If an item is incomplete, the credit bureau must
complete it. For example, if your file showed that
you were late making payments, but failed to show
that you were no longer delinquent, the credit bureau
must show that you're current.
- If your file shows an account that belongs to another
person, the credit bureau must delete it.
When the re-investigation is complete,
the credit bureau must give you the written results
and a free copy of your report if the dispute results
in a change. If an item is changed or removed, the credit
bureau cannot put the disputed information back in your
file unless the information provider verifies its accuracy
and completeness, and the credit bureau gives you a
written notice that includes the name, address, and
phone number of the provider.
Also, if you request it, the credit
bureau must send notices of corrections to anyone who
received your report in the past six months. If a re-investigation
does not resolve your dispute, ask the credit bureau
to include your statement of the dispute in your file
and in future reports.
In addition to writing to the credit bureau, tell the
servicer in writing that you dispute an item. Include
copies (NOT originals) of the documents that support
your position. If a servicer specifies an address for
disputes, it is important to send your dispute to that
address. If the provider then reports the item to any
credit bureau, it must include a notice of your dispute.
If you are correct — that is, if the disputed
information is inaccurate — the information provider
may not report it again.
Sample Dispute
Letter to Credit Bureau
Date
Your Name
Your Address
Your City, State, Zip Code
Complaint Department
Name of Credit Reporting Agency
Address
City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute the
following information in my file. The items I
dispute also are encircled on the attached copy
of the report I received. (Identify item(s) disputed
by name of loan servicer and loan number.)
This item is (inaccurate or
incomplete) because (describe what is inaccurate
or incomplete and why). I am requesting that the
item be deleted (or request another specific change)
to correct the information.
Enclosed are copies of (use
this sentence if applicable and describe any enclosed
documentation, such as payment records, court
documents) supporting my position. Please re-investigate
this (these) matter(s) and (delete or correct)
the disputed item(s) as soon as possible.
Sincerely,
Your name
Enclosures: (List what you are
enclosing) |
If You Have a Complaint
If you believe your mortgage servicer
has not responded appropriately to your written inquiry,
contact your local or state consumer protection office.
You also should contact the Department of Housing and
Urban Development (HUD) to file a complaint under the
RESPA regulations. Write: Office of RESPA and Interstate
Land Sales, Department of Housing and Urban Development,
451 Seventh Street, S.W., Room 9146, Washington, DC
20410.
In addition, you may want to contact
an attorney to advise you of your legal rights. Under
certain sections of the RESPA, consumers can initiate
lawsuits and obtain actual damages, plus additional
damages, for a pattern or practice of noncompliance.
In successful actions, consumers also may obtain court
costs and attorney's fees.
You may want to contact a housing
counselor to discuss your situation. You can call HUD's
hotline at 1-800-217-6970 for a referral to a local
HUD-approved housing counselor.
You also may wish to contact the FTC.
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