Blown Mortgage

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Today Twist from Housing Doom shares with us some information on an all-to-common question in light of the recent spate of mortgage company closures. Thanks Housing Doom!

With Tucson based First Magnus filing for Chapter 11, the Arizona Daily Star thought it would cover the very pertinent question of “What do I do about my mortgage payment now?” On September 4th the Mortgage Implode-o-meter was reporting 145 imploded lenders, so obviously this is a question of interest beyond the borders of Tucson. Of particular note was the importance of HELLO and GOODBYE letters:

Some borrowers [might be] wondering what might happen to their loans, and where they should be mailing their future monthly checks.

Luckily, there is a document — probably buried somewhere in borrowers’ packets of closing materials — that addresses situations like this.

The document is usually called a “servicing disclosure statement,” and it explains the notification requirements for companies that buy and sell loans, of the right to collect payment for them, under the federal Real Estate Settlement Procedures Act.

The law requires that loan servicers — the companies that collect payments — provide written notice to borrowers at least 15 days before loans (or servicing rights) are sold, according to the disclosure statement. Meanwhile, the new servicing company must mail a written notice no more than 15 days after the transfer, according to the statement.

There is also a 60-day grace period following the sale during which borrowers cannot be penalized if they mail payments before the due date to the previous mortgage company.

The notices are known as “goodbye” and “hello,” or “welcome,” letters, providing names and contact information of former and new servicing companies, mortgage industry members said. Borrowers should make sure they get both letters to ensure that the transfer is legitimate, the industry members said.

Scam artists could try to send fake “hello” letters in hopes of getting hold of mortgage payments, said Gary Franks, president of the Southern Chapter of the Arizona Association of Mortgage Brokers.

“That’s why the ‘goodbye’ letter is so important,” he said.

<When in doubt, borrowers can check with the original mortgage company, said Stan Lund, president of the Arizona Association of Mortgage Brokers. Lund also recommends that borrowers make sure after sending payments to a new company that their checks are cashed by the proper party.

“I would check to make sure they received the payment and it was posted correctly to your account,” he said.

Bankruptcies can complicate the situation, however, Franks said. Instead of the standard “goodbye,” and “hello” letters, companies in bankruptcy can take up to 30 days after a transfer to notify borrowers of the change.

“People may not get their ‘hello-goodbye’ letters because it’s happening so quickly,” he said.

It might be tempting just to blow-off the payment until someone runs you down. Your loan however, is an asset of your lender, and SOMEBODY is going to end up with it.

The terms of your mortgage — like those of other bonds — are fixed in the original agreement. That’s also why — even if your lender goes broke — you’re still on the hook to pay it back to whoever buys it.

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