The Evans had a mortgage that transferred to three different mortgage servicing companies within a short period of time. When they called their mortgage company to ask for the balance in their escrow account they discovered that the mortgage company had disbursed their escrow money to pay the property taxes, but the city and county tax office did not show the taxes paid. Where was their tax money applied?
“I was having problems getting the mortgage company to pay our taxes. The taxes were late and we were getting charged delinquent fees,” says Rhonda Evans of Jackson, Tennessee.
After a few months of ongoing conversations with the mortgage company, Rhonda called a friend in the mortgage business to help. As it turned out, the mortgage company had paid the taxes from the Evans’ escrow account but applied it to the wrong property. The research process was further complicated because the mortgage had been transferred from another servicing agent. The Evans got their taxes paid and delinquent fees reimbursed but only after a frustrating few months.
Not everyone has a bad experience with mortgage servicing transfers but it can be time consuming and aggravating when problems do arise. Most borrowers are glad to have the taxes and insurance paid automatically by the mortgage company and do not care who services the loan. Others ask why their loans are transferred and how this affects them.
One reason mortgage companies transfer loans is to keep a large enough pool of money on hand to continue to fund loans currently being made. They sell the loans to Fannie Mae or other secondary market entity and continue to service the account for the customer. The customer continues to make their payments to the same mortgage company but the mortgage company sends the payments on to Fannie Mae after taking their profit for the servicing fee. As far as the customer is concerned, there has been no transfer at all.
When the mortgage company sells the loan and the servicing, the customer is notified at least 15 days before the transfer that they will be making payments to another company… The decision to sell the servicing on a loan is usually not personal but because that loan belongs to a pool of several loans. The mortgage company actually makes a good profit selling the servicing rights to their mortgages. For instance, if the mortgage company sells off loans every month, the profit looks something like this: 12 X ($1,000,000 x .01) = $120,000. If the mortgage company keeps the loans collecting interest instead, the profit looks something like this: $1,000,000 X .08 = $80,000.
The National Affordable Housing Act was passed in 1990 to address borrowers’ concerns regarding the transfer of the mortgage to other companies. The borrower can expect a 60 day grace period after the transfer when they cannot be charged a late fee and cannot be reported to the credit bureaus for late payments. The servicing company is required to send an annual statement detailing the activity of the escrow account and amount of the principal balance. They must disclose to the borrower the name and address of the new servicer, the date the current servicer will stop accepting mortgage payments and when the new servicer will begin accepting them. The servicer must provide a free or collect telephone number for both the current servicer and the new one.
J. Garner, Mortgage Officer
Evolve Bank & Trust