Avoid Mortgage Transfer: What You Need To Know

If you're concerned about your mortgage being transferred, it's important to understand the different types of transfers that can occur. A transfer of mortgage occurs when the existing mortgage is reassigned to another person or entity, which may help you avoid foreclosure. However, most conventional mortgages are not transferable. On the other hand, a servicing transfer happens when the rights to service the loan are sold to another company, and this is a common occurrence. In this case, you'll need to start sending your payments to the new servicer and update your payment methods. The terms of your loan will remain the same, and you'll receive notices about the transfer.

Understand what a mortgage transfer is

A mortgage transfer is when another person or entity takes over an existing mortgage. This means that the new borrower agrees to make all future payments at the original interest rate. The transfer typically eliminates any legal obligations the original borrower has to the loan.

Mortgages that can be transferred are considered "assumable". FHA, VA and USDA loans are often assumable and can be transferred if the lender approves. Government-backed loans also allow transfers in some cases, but the process is not simple. Most conventional mortgages are not transferable, and lenders may include a due-on-sale clause in their loans that prohibits a home seller from transferring a mortgage to a buyer.

If your mortgage is transferred, you will receive a notification from both your old and new servicers. The notice must include the date on which your old servicer will stop accepting payments, the date on which your new servicer will begin to accept payments, the new servicer's name and contact information, and whether you can continue any optional insurance. You will need to start sending your monthly payments to the new servicer after a certain date, and you should also direct any questions about your loan to them.

Know the reasons behind mortgage transfers

If you've ever taken out a mortgage, chances are that the lender who gave you the loan has sold it to another bank or investor. This is a common practice in the mortgage industry.

Mortgages are often sold to other companies or investors to free up funds for the lender to offer more loans. The trading of mortgage-backed securities in the secondary mortgage market allows for a continuous flow of funds in the housing and financing markets. Many lenders specialize in originating a mortgage, but often, this initial lender can't afford to wait 15 or 30 years for you to pay it all back. By selling the mortgage, the lender gets their money sooner, and they can lend that money to someone else. Both the buyer and the seller make a profit, and the risk to the original lender is removed.

Mortgage servicing rights (MSR) are often transferred to a third party that takes over the administrative tasks of servicing a mortgage in exchange for a fee. The "sale" of your mortgage usually means that the servicing of your mortgage has been transferred to a new company, so you will be sending your monthly payments to a new company. The only thing that changes with the transfer of servicing rights for your mortgage is who you make your payments to. The terms of your original mortgage are set in stone and cannot be modified by the new lender or servicer.

If you receive a notice that your mortgage has been sold, you have rights under the Real Estate Settlement Procedures Act (RESPA) that require your current and new servicers to provide you with notices and information about the transfer. You should receive a letter of introduction from your new servicer before your next anticipated payment.

Learn what to do when notified of a transfer

If you've been notified that your mortgage has been transferred to a new servicer, don't panic. This is a common occurrence and it shouldn't affect the terms of your mortgage. The only change is that you'll be sending your mortgage payments to a different company. Here's what you should do:

• Review your notification carefully: The notification of the transfer should include detailed information on where to direct your payments, such as by mail, automatic payments, or other options. It should also include the date your old servicer will stop accepting payments and the date the new servicer will start accepting them.
• Update your payment methods: If you make payments online or through your bank's automatic bill payment system, be sure to update the recipient to the new servicer. If you have automated payments set up, you may need to sign and return an authorization form to allow drafts to the new servicer.
• Keep records: Keep copies of statements from the months surrounding the transfer, including the promissory note and deed of trust. Hold on to documentation as proof of on-time payments in case of any confusion or disputes.
• Monitor your payments: For 60 days from the date of the transfer, your new servicer cannot treat your payment as late if you sent it to the previous servicer on time or within the grace period. However, it's still important to carefully review your monthly mortgage statement to confirm that your payments are being credited accurately.
• Contact the new servicer: If you have any questions or concerns about the transfer, don't hesitate to reach out to the new servicer. They are there to help you navigate the transition and ensure that your payments are properly credited.
• Be cautious of fraud: If you receive a notice from a new servicer without prior notification from your current servicer, do not send any money. Contact your current servicer to verify the information and avoid potential fraud.

Understand the impact on loan terms and payments

If your mortgage servicing rights are transferred to a new servicer, you will need to start sending your monthly payments to the new servicer after a certain date. You will also need to direct any questions about your loan to the new servicer. Your old and new servicers generally must send you a notice telling you about the transfer of servicing rights to your loan. Your old servicer should send this notice at least 15 days before your loan’s servicing rights are transferred to the new servicer. Your new servicer should send a notice to you within 15 days after the servicing rights for your loan are transferred unless it was combined with the first notice. The notice(s) should tell you the date on which your old servicer will stop accepting payments, the date on which your new servicer will begin to accept payments, the new servicer’s name, and their contact information.

If you send your payments to the wrong servicer after you’ve been notified of the servicing transfer, your payments may not be credited properly. Therefore, it is important to pay attention to the date you need to start sending your payments to the new servicer. Be sure to account for additional time if you send your mortgage payments by mail. If you make your payments online, you’ll create a new account if your new servicer has online payment. If you have bill pay set up through your bank, you’ll need to change the recipient to your new servicer. If you authorize your bank’s or credit union’s online bill payment system to automatically pay your mortgage payment, you will need to tell your bank or credit union to make those payments to the new servicer.

The only thing that changes with the transfer of servicing rights for your mortgage is who you make your payment to. Mortgage servicing is the act of administering your mortgage from the time your loan closes until it’s paid off. It is the job of the servicer to collect your payment and forward it to the investors in your mortgage. If you have an escrow account for real estate taxes, homeowners’ insurance, and (if applicable) mortgage insurance, they also maintain this. Your new mortgage servicer should automatically take over responsibility for all escrow payments from your previous servicer. That means satisfaction of state and local property taxes will be handled through the new servicer, as well as private mortgage insurance and homeowners’ insurance.

In a very few cases, there may be issues that crop up. For example, if you were in the process of cancelling private mortgage insurance with your previous servicer, it’s important to verify that this process has continued over your new mortgage servicer. New mortgage servicers typically understand that there may be confusion associated with switching payments from one servicer to another. That is why a team of customer service representatives will likely be on call to answer any questions or facilitate a solution, all to help ensure a seamless transition.

Explore alternatives to mortgage transfer

Mortgage transfers are a complex process and are not always possible. If you are unable to transfer your mortgage, there are several alternatives you can consider:

• Work with your lender: Discuss other payment arrangements with your lender, such as a temporary suspension of your payment obligation. Many lenders would prefer to work with you to find a solution rather than go through the costly process of foreclosure.
• Sell the home: If selling your home, you can have a potential buyer, colleague, or family member agree to make up any difference between the home's sale price and the unpaid loan balance. This option may also be combined with a "piggyback loan" for buyers who need assistance covering the difference.
• Add a second borrower: This option involves adding a new borrower to the loan. However, it is important to note that this does not remove the original borrower's liability for the debt.
• Refinance and add a second borrower: By refinancing, you can adjust the loan's terms and rate, and it may be easier to add another borrower. However, refinancing can be a complex process and may not be suitable for everyone.
• Government-backed loans: If you have a government-backed loan, such as FHA, VA, or USDA loans, transferring your mortgage may be an option. These loans are often assumable, meaning they can be transferred with the lender's approval.
• Explore legal options: Transferring a mortgage can have legal implications, and it may be advisable to seek legal representation to ensure your interests are protected.
• Maintain timely payments: Until a transfer is approved, continue making timely payments and follow any instructions provided by your lender.

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