How many days does a lender have to provide the servicing transfer notice

You have completed every step of the mortgage process: from the application to underwriting to closing, you have secured your home loan and made the purchase you’ve been waiting for. However, borrowers often don’t realize that mortgage closing isn’t the end of the home loan process. Loans are commonly transferred to other companies for servicing—sometimes even before the first payment is made!

In this post, the final segment of our Explaining the Home Loan Process series, we’ll cover loan servicing transfer.

Transfer of loan servicing is no reason to panic. In fact, it’s quite common in the mortgage industry for loan servicing to be transferred from your initial lender to another company. While it may not be cause for concern, it’s important for you to understand your rights as a borrower and what to expect during (and after) the transfer.

Definition: Transfer of Loan Servicing

When your lender transfers servicing, they hand over the management of your loan to a new mortgage or servicing company. For the borrower, all this means is a new institution will be collecting your payments, handling your escrow accounts, dealing with any insurance or tax matters, and answering your questions.

This transaction will not impact your initial mortgage agreement in any way. Your loan amount, interest rate, contractual payment obligation and payment schedule will remain the same. The only change as a result of this transfer will be where you send your monthly mortgage payment.

This transfer could take place at any time during the life of your loan. In some cases, loan servicing can be transferred right after closing—even before a payment is made. Under the Real Estate Settlement Procedures Act (RESPA), lenders are typically required to provide certain disclosures during the mortgage process. This includes a Mortgage Servicing Disclosure Statement, which explains whether the lender intends to service the loan or transfer servicing to another company.

Notice of Transfer of Loan Servicing

When the servicing of your loan is being transferred, you should receive two notices in the mail:

• A letter from your current servicer, which should be provided at least 15 days before the effective date of the transfer, commonly referred to as a “goodbye” letter.
• A letter from your new servicer, which should be provided within 15 days of the effective date of the transfer, commonly referred to as a “hello” letter.

Both documents will contain information regarding the impending transfer, including the name, location, and phone number of the new mortgage company. The welcome letter from your new loan servicer will also include where and when you should begin sending your monthly payment. Each letter will also provide a statement explaining your rights and what to do if you have any questions or complaints about the servicing of your loan.

Avoid Loan Servicing Transfer Scams

In very rare cases, borrowers may receive a single letter indicating the transfer of loan servicing. If you only receive one letter, it should represent both sides of the servicing equation; it should include the ‘goodbye’ from your current servicer and the ‘welcome’ from your new servicer.

However, beware if you only receive a welcome letter. This could be a mortgage scam, designed by a thief who is posing as a new loan servicer to collect your monthly payments.

To avoid scams, always double-check with your current servicer. Upon receiving any notice of transfer in the mail, call your current servicer to certify your loan servicing is truly being transferred before sending any monthly payments to a new company.

Grace Period & Borrower Protections

The switch between loan servicers should be relatively smooth. But in case of any confusion, RESPA grants homeowners a 60-day grace period for 60 days from the date your loan servicing transfers, your new servicer cannot charge you a late fee or treat the payment as late if you sent it to your previous servicer on time or within the applicable grace period. This protects mortgage holders who may send their mortgage payments to their old servicers accidentally. It also serves as a cushion for borrowers who need to reroute automatic electronic payments to their new servicer's address.

Checklist: Loan Servicing Transfer

Most borrowers will undergo a transfer of loan servicing at least once during homeownership. To help you better navigate the transfer, follow the checklist below:

Watch for two notices in the mail

Be certain you receive both a goodbye letter (from your old servicer) and a welcome letter (from your new servicer). If you do not receive both notices, call your old servicer to verify the transfer.

Reroute your mortgage payments

If you pay your mortgage using automatic electronic payments, be sure to reroute your payments to the new company. If you send checks every month, ensure you send your next check to new servicer at the address listed in the welcome letter.

Review homeowners insurance policy

Your loan servicer will likely notify your homeowners insurance carrier that your loan has transferred to new servicer. Make sure to review your next policy renewal notice to verify that the change has been made. If the policy hasn't been updated, contact your insurance company to ensure they update your loan servicing information.

Double-check they have your information right

Double-check that the mortgage account information listed on both notices is correct. It is important to clear up any mistakes sooner rather than later, as they can affect your future mortgage payments.

Moving Forward With Your New Lender

Once your transfer is complete, you shouldn’t notice any changes with your mortgage—other than where you send your monthly payments. As mentioned above, transferring the servicing of a loan is rather common so it is possible that your loan servicing could be transferred again in the future.

If you have questions during the transfer process, don’t hesitate to ask your new servicer. Your loan servicer is there to help you and they want to make your life as a mortgage holder as simple as possible.

If your mortgage has been transferred to Pennymac, contact a Pennymac Customer Service Representative today. Our highly trained staff will answer any questions you may have on loan servicing or any other portion of the mortgage process.

Explore the Home Loan Process in Further Detail

To learn more about the other typical steps in obtaining a mortgage, take a look at the previous sections of our Explaining the Home Loan Process series:

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Lenders and mortgage companies often sell the home loans that they make to bring in more money to lend to other borrowers. Servicing rights are also frequently bought and sold, separate from the underlying loans. A transfer could happen at any time during the life of your loan.

If you find out that your servicer is changing, this change isn’t a reflection on you—your loan was probably one of many transferred as part of a package deal. When your lender transfers the servicing, it hands over the day-to-day management of your account to a new company.

As a borrower, all a servicing transfer means is that you’ll send your payments to a different company. That company will now also handle your escrow account, answer questions about your loan, and manage the foreclosure process if you default on the payments. While a servicing transfer generally isn't a cause for concern, you should understand your rights as a borrower. For instance, you should know about your right to receive notice about the transfer and what to expect during and after the transfer.

Getting Notice of a Servicing Transfer

Under the Real Estate Settlement Procedures Act (RESPA), if your lender transfers your loan to a new servicer, your current servicer and the new servicer have to send you a letter. These letters are usually called "goodbye" and "hello" letters in the mortgage business.

Sometimes, payments sent to the old servicer get misplaced during a transfer, which means the new servicer might not credit the amount to your account.

In most cases, the old servicer must provide you with a notice of servicing transfer (a goodbye letter) not less than 15 days before the effective date of the transfer. Your new servicer must provide a servicing transfer notice (a hello letter) not more than 15 days after the transfer date. Or the servicers might choose to send a combined notice not less than 15 days before the transfer. A combined letter will include both “goodbye” and “hello” information from the servicers. (12 C.F.R. § 1024.33).

Avoiding Servicing Transfer Scams

Rarely—though it can happen—borrowers get a scammer letter saying a new servicer is handling their loan. This scam involves someone pretending to be the new servicer and stealing the borrower's monthly payments. If you get just one letter about a servicing transfer, make sure it includes all required information (see below) and comes from both servicers. Also, to be safe, verify the transfer by calling your current servicer (get the number from the Internet or your mortgage statement) before you send any payments to a new servicer.

What’s in a Servicing Transfer Notice?

A notice of transfer will tell you where and when you should start sending your monthly payment, as well as explain your rights and let you know what to do if you have any questions about the servicing of your loan.

Specifically, by law, a notice of transfer has to include the following information:

• the effective date of the transfer of servicing
• the name, address, and a collect call or toll-free telephone number for an employee or department of the new servicer that you can contact to get answers to any questions you have about the servicing transfer
• the name, address, and a collect call or toll-free telephone number for an employee or department of the old servicer that you can contact to get answers to any questions you have about the servicing transfer
• the date that the old servicer will stop accepting your payments and when the new servicer will start accepting payments (these dates must either be the same or consecutive days)
• whether the transfer will affect the terms or the continued availability of mortgage life or disability insurance, or any other type of optional insurance, and any action you have to take to maintain such coverage, and
• a statement that the transfer doesn’t affect the terms or condition of the mortgage loan (other than those directly related to the servicing of the loan). (12 C.F.R. § 1024.33.)

What Happens If You Send Your Payment to the Old Servicer After a Transfer

Under federal law, if the old servicer receives your payment after the loan transfers, it may choose to either:

• send the payment to the new servicer to apply to your account, or
• return the payment to you and let you know the proper recipient for it. (12 C.F.R. § 1024.33.)

In the future, you should be sure to send the payment to the new servicer to prevent any account processing delays and avoid late charges.

You Get a 60-Day Grace Period After a Servicing Transfer

If you send your payment to the old servicer by mistake, the new servicer can’t treat it as late if:

• you sent it to the old servicer within 60 days of the transfer, and
• the old servicer received it on or before the due date, including any grace period. (12 C.F.R. § 1024.33.)

The new servicer can’t impose a late charge or treat the payment as late for any other purposes if you mistakenly sent it to the old servicer during this time, so long as the old servicer receives the money before it’s due (including any grace period allowed by the mortgage documents).

What to Do If a Problem Arises

Sometimes, payments sent to the old servicer get misplaced during a transfer, which means the new servicer might not credit the amount to your account. If you send a payment to the old servicer, but it isn’t returned, and the new servicer doesn’t credit it to your account, contact your new servicer and ask them to credit the account. You may call the servicer and send a "notice of error" to both the new servicer and the old servicer along with copies of any supporting paperwork. After you send your notice-of-error letters to the servicers, federal law requires both the new servicer and old servicer to investigate and respond (so long as the servicing transfer occurred less than a year ago). (12 C.F.R. § 1024.35.)

While the servicers look into the matter, keep making your regular payments, as scheduled, to the new servicer. Monitor your account with the new servicer for at least two months to ensure the money is being applied to your account.

If the new servicer refuses to credit a payment you sent the old servicer to your account, consider talking to an attorney to get information about how you can enforce your rights.