Protecting Homeowners If Loans Are Transferred

The Housing and Community Development Act of 1990 established important safeguards for homeowners who have their loans transferred and, to a lesser extent, borrowers in general. Here are the key components of the law:

* When you first apply for a mortgage, the lender must tell you in writing what the chances are that your loan will be sold or your servicing rights will be transferred.

The lender must also provide an estimate of the percentage of loans it expects to sell or transfer over the next 12 months.

If you want to minimize the chances of having your loan transferred, go with a company that hasn’t sold many loans over the past couple of years or--even better--stick with a company that doesn’t sell them at all.

Remember, though, that just because a lender estimates that it will sell only a small percentage of its loans over the next 12 months, this doesn’t guarantee it. The estimates aren’t binding.

* Your lender must notify you in writing at least 15 days before a transfer can take place. The letter must include the date that the transfer will become effective, the name and address of the new servicer, and a toll-free or collect-call number for the new company.

The letter must also include the date on which the original lender will no longer accept payments.

If you have any voluntary insurance--like the type that will pay your loan off if you become disabled or die--you must also be told what effect the transfer will have on your policy and any action you must take to maintain coverage.

* The new servicer must send you the same basic information within 15 days after the transfer becomes effective.

* You can’t be charged a late fee if you mail your check to the old address within 60 days after the loan is officially transferred, as long as your payment is on time.

Nor can you be reported delinquent to a credit bureau if you made an on-time payment but sent it to the wrong address.

* Regardless of whether your loan has been transferred, all servicers must respond to any written inquiry you make within 20 business days from the time your letter is received.

All lenders and other servicers have an additional 60 business days to rectify any problems or respond with a letter that clarifies its position if you make a second query.

During this 60-day period, the servicer is prohibited from reporting to a credit bureau that any payment related to the inquiry is overdue.