For All Borrowers: Who’s Servicing Your Loan?Skip to issue
§1. Updating borrowers
During the mortgage crisis, some consumers had trouble finding the right person to contact about problems with their home mortgage. The mortgage industry is complicated. A home buyer borrows money from a lender who “owns” the mortgage, and has the right to collect the payments. But, many lenders don’t keep these mortgage loans. They sell them to a new owner, who may resell them to yet another company. Other times, the original lender keeps the mortgage but sells the right to collect the payments to a company known as a “servicer” who actually deals with the borrower to collect payments, etc. Servicers get a fee for doing this and it can be profitable — $25-$50 per thousand dollars of remaining principal, per year – so servicing rights are often resold to still other companies. So, Company 1 might have made the mortgage loan, Company 2 might buy it and become the new owner; Company 3 might get the right to collect the payments, but then resell those “servicing rights” to Company 4. And sometimes the companies are related to one another. No wonder borrowers sometimes couldn’t figure out who to talk to.
CFPB wants borrowers to get better information about when the servicing rights on their mortgage are sold to a different company. Its proposal would also make servicers responsible for good recordkeeping and communication when a loan is being transferred.
What this means for consumers. Here is the notice CFPB is proposing to require:
Is this form clear to borrowers? Is there too much, or too little, information? CFPB wants to keep the form to one page.
The notice must be sent no later than 15 days before the transfer takes effect.
What this means for servicers. CFPB doesn’t expect these proposals to impose significant new burdens on servicers, who are already required to send a transfer notice. The revised model form no longer includes a collect-call telephone number (now, outdated), and the statement explaining complaint resolution rights (now, handled in other ways. See the Getting Errors Fixed post.) Both the transferor and the transferee are required to notify buyers but they can use a single combined form. Servicers will want to look at what sort of transfers would not trigger the new notice requirements (§ 1024.33(b)(2)).
Read what CFPB says in the NPRM about servicing transfer.
See the text of the proposed rule and CFPB commentary: § 1024.33.
§2. Getting info to the new servicer
Borrowers can be hurt if the original servicer hasn’t given the new servicer the borrower’s loan documents, complete and accurate information about payment history, etc. Borrowers in trouble may discover that the new servicer doesn’t know about things the borrower has been doing to get back on track. (See Options for Avoiding Foreclosure post.) CFPB is proposing to make servicers more responsible for better communications and account information management when servicing rights are transferred. Also, it’s proposing a new rule for what happens when a borrower mistakenly makes a payment or two to the old servicer.
What this means for consumers. The new proposals would require servicers to make sure that the borrower’s account information is transferred quickly and correctly to the new servicer. Also, a servicer would have to keep account records for at least a year after the transfer, in case borrowers need information or think there’s been an error. (See the Asking for, and Getting, Information and Getting Errors Fixed posts.)
If the borrower mistakenly makes a payment to the old servicer during the first 60 days after the transfer takes effect, CFPB is proposing that so long as the payment was on time, the new servicer could not charge a late fee. The old servicer must either send the payment to the new servicer or return it to the borrower. CFPB has been told that many servicers routinely send such payments to the new servicer. Should this be the new rule? If borrowers can’t be charged a late fee, would the costs to servicers be worth it, especially since added costs may be passed on to consumers? If CFPB does not require the older servicer to send the payment to the new servicer, should it set standards for when and how the old servicer must return the payment to the borrower?
What this means for servicers. Under the new rules, servicers would be required to have “reasonable information management policies and practices” to ensure “the timely transfer of all information and documents relating to a transferred mortgage loan … in a form and manner that ensures the accuracy of the information and documents transferred.” This includes promptly transferring all documents related to loss mitigation options the borrower might be pursuing. See Options for Avoiding Foreclosure § 2.) For details about the new requirement that servicers maintain a “servicing file” for each borrower, see Reliable Contact with People Who Can Help § 2.