Last week’s column discussed the ability of lenders to buy and sell home loans. Some borrowers find that after they receive a home loan, their lender sells the loan to a different lender. As a result, a borrower who expected to make payments to a single lender for 30 years might find themselves making payments to a number of different lenders, one after the other. This process can sometimes be confusing or frustrating to borrowers.
In order to provide borrowers with some clarity in this process of buying and selling loans, Congress has passed Federal legislation concerning the purchase and sale of some home loans. This legislation requires lenders who deal in some types of loans to provide certain information to borrowers. For example, each person who makes a “federally related mortgage loan” is required by law to disclose to each loan applicant at the time the loan is applied for that the loan may be transferred to another lender.
If a loan is actually sold, then federal law requires that such existing lenders (or servicers) give notice to the borrower of such sale at least 15 days before the sale. Such notice must include the name, address, and toll-free number for the new lender. The notice must also give the last date on which the current lender will accept loan payments, and the date on which the new lender will accept payments. In addition, the law requires certain new lenders (or servicers) to also give the borrower a notice that the loan, or the servicing of the loan, has been sold. The new lender must give this notice at least 15 days after the sale is made. The Federal law that requires these notices to be given is found at 12 United States Code section 2605.
By requiring both the old and the new lenders to each give notice to the borrower, Congress in effect provided a second “layer” of notice. If notice from one of the lenders fails to reach the borrower, then ideally the notice from the other lender will make it to the borrower. This means that in some situations a borrower will receive two notices, with one coming from the former lender and one coming from the new lender.
Sometimes lenders hire other companies to “service” their loans. Companies who “service” loans collect payments as they become due. These servicers also communicate with the borrower, even though such “servicer” may not actually own the loan. The notification requirements discussed above specifically apply to loan “servicers.”