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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
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.
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:
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.
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.
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.
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.
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.
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 9154, 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.