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Mortgage Servicing Rights and Loan Transfers

Mortgage servicing rights (MSRs) represent the right to collect payments and manage a mortgage loan on behalf of the loan owner. MSRs are routinely bought and sold between mortgage companies, resulting in servicing transfers that change the borrower's payment destination and contact point. Federal law (RESPA) requires advance notification of transfers, provides a 60-day grace period for misdirected payments, and mandates proper escrow account transfer. The loan terms remain unchanged regardless of who services the loan.

Key Takeaways

  • Servicing transfers are a routine industry practice that changes who collects your payment but does not change your loan terms, rate, or balance.
  • RESPA requires written notice from both the old and new servicer — 15 days before the transfer and 15 days after, respectively.
  • A 60-day grace period protects borrowers who send payments to the old servicer in good faith after a transfer.
  • The escrow account balance must be transferred to the new servicer, which must perform an escrow analysis within 60 days.
  • Automatic payment (ACH/auto-pay) arrangements do not automatically transfer and must be re-established with the new servicer.
  • Borrowers can submit qualified written requests (QWRs) to the servicer to resolve errors, with a required 30-day response time.
  • No servicing transfer can change the interest rate, payment amount, maturity date, or other contractual loan terms.
  • Keeping records of all payments during the transition period is essential for resolving any disputes about payment application.

How It Works

What Mortgage Servicing Involves

The loan servicer performs several critical functions: collecting and processing monthly payments, managing the escrow account for property taxes and insurance, handling delinquent accounts and loss mitigation, providing year-end tax statements (Form 1098), maintaining payment records, and responding to borrower inquiries. The servicer is the borrower’s primary point of contact for all loan-related matters, from payment questions to hardship assistance.

Why Loans Are Transferred

Loan servicing transfers occur for several business reasons. Many lenders originate loans but prefer to sell the servicing rights to companies that specialize in servicing. The originator receives an upfront payment for the MSRs and avoids the ongoing operational costs of servicing. Servicing transfers also occur when one servicer is acquired by another, when a servicer exits the business, or when portfolio strategy changes require shifting servicing to a different entity.

Borrower Notification Requirements

RESPA requires both the current servicer (transferor) and the new servicer (transferee) to send written notices to the borrower. The transferor must provide notice at least 15 days before the transfer effective date. The transferee must provide notice within 15 days after the transfer effective date. These notices may be combined into a single notice sent jointly by both parties. The notices must include the effective date of the transfer, contact information for both the old and new servicer, and information about whether the borrower can continue to make payments to the old servicer during a transition period .

60-Day Grace Period

Federal law provides a 60-day safe harbor period following a servicing transfer during which a payment sent in good faith to the old servicer cannot be treated as late by the new servicer. The old servicer is required to forward the payment to the new servicer. This grace period protects borrowers who may not have received or processed the transfer notices in time to redirect their payments .

Escrow Account Transfer

When servicing transfers, the escrow account balance must be transferred to the new servicer. The new servicer must perform an escrow analysis within 60 days of the transfer to verify that the account balance is sufficient to cover upcoming tax and insurance disbursements. If the analysis reveals a shortage or surplus, the new servicer must notify the borrower and adjust the monthly escrow payment accordingly. Borrowers should verify that all escrow funds are properly transferred and that tax and insurance payments continue to be made on time .

Common Issues During Servicing Transfers

Despite regulatory protections, servicing transfers can create problems for borrowers. Common issues include payments applied to the wrong account or not applied at all during the transition, automatic payment (auto-pay or ACH) disruptions requiring the borrower to re-establish recurring payments with the new servicer, escrow analysis changes resulting in unexpected payment increases or decreases, and temporary inability to access online account information during the transition period.

Borrowers experiencing issues during a servicing transfer should document everything in writing, submit qualified written requests (QWRs) or notices of error to the new servicer under RESPA, and keep records of all payments made during the transition period. The servicer is required to respond to QWRs within 30 days (with a possible 15-day extension) .

Borrower Rights During and After Transfer

Borrowers have the right to receive timely transfer notices, the right to a 60-day grace period for misdirected payments, the right to have the escrow account properly transferred and analyzed, the right to submit complaints and receive responses, and the right to have their loan terms remain unchanged. No servicing transfer can modify the interest rate, payment schedule, or other contractual terms of the loan. If the new servicer claims different terms than the original loan documents specify, the borrower should dispute the claim in writing and reference the original loan documents.

Related topics include trid: tila-respa integrated disclosure rules, respa explained: real estate settlement procedures act, role of fannie mae and freddie mac in mortgage lending, and mortgage regulations: a borrower’s guide.

Key Factors

Factors relevant to Mortgage Servicing Rights and Loan Transfers
Factor Description Typical Range
Notification Timing
Grace Period
Escrow Account Balance
Auto-Pay Arrangements

Examples

Scenario: Routine servicing transfer with no issues
Outcome: The borrower cancels auto-pay with the old servicer, sets up auto-pay with the new servicer effective April 1, and verifies the first payment is applied correctly. The escrow balance transfers properly, and the new servicer's escrow analysis confirms no adjustment is needed. The transition is seamless.

Scenario: Payment misdirected to old servicer during transition
Outcome: Under RESPA's 60-day grace period, the payments sent in good faith to the old servicer cannot be treated as late. The old servicer is required to forward the payments to the new servicer. The borrower contacts both servicers, provides payment confirmation, and the new servicer corrects the account. No late fees or negative credit reporting can apply during the 60-day grace period.

Scenario: Escrow shortage discovered after transfer
Outcome: The borrower can pay the $1,200 shortage in full or spread it over 12 months ($100/month added to the payment). The monthly escrow payment is also adjusted upward to account for the higher tax amount going forward. The increase is due to the tax change, not the servicing transfer itself.

Common Mistakes to Avoid

  • Ignoring servicing transfer notices
  • Assuming auto-pay transfers automatically to the new servicer
  • Not verifying that escrow payments (taxes and insurance) are being made after the transfer
  • Accepting different loan terms from the new servicer without verifying against original documents
  • Not keeping records of payments made during the transition period

Documents You May Need

  • Servicing transfer notices from both the old and new servicer
  • Original loan documents (promissory note, deed of trust) showing contractual terms
  • Payment records (bank statements, canceled checks, confirmation numbers) for the transition period
  • New servicer welcome packet with account number, payment address, and online access setup
  • Escrow analysis statement from the new servicer
  • Auto-pay setup confirmation from the new servicer
  • Written correspondence (qualified written requests) sent to the servicer regarding any errors
  • Most recent mortgage statement from the old servicer showing balance, escrow, and payment history

Frequently Asked Questions

Can a servicing transfer change my interest rate or loan terms?
No. A servicing transfer cannot modify any terms of your loan. Your interest rate, monthly payment calculation, remaining balance, maturity date, and all other contractual terms remain exactly the same. Only the company collecting your payment changes.
Why was my loan transferred to a different servicer?
Servicing transfers are a standard business practice. Originators often sell servicing rights to companies that specialize in servicing. Transfers also occur due to mergers, acquisitions, or portfolio strategy changes. You did not do anything to cause the transfer.
What should I do when I receive a servicing transfer notice?
Read the notice carefully. Note the transfer effective date, the new servicer's contact information, and payment instructions. Cancel auto-pay with the old servicer. Set up payment with the new servicer. Keep the notice for your records.
What if I accidentally send a payment to the old servicer after the transfer?
Under RESPA, you have a 60-day grace period during which payments sent in good faith to the old servicer cannot be treated as late. The old servicer must forward the payment. After 60 days, you are responsible for sending payments to the correct servicer.
Will my automatic payments continue after a servicing transfer?
No. Auto-pay and ACH arrangements do not transfer automatically. You must set up new automatic payments with the new servicer. Contact the new servicer as soon as you receive the transfer notice to avoid a missed payment.
What if the new servicer says I owe a different amount than my original documents show?
Reference your original loan documents (promissory note and deed of trust) which specify your contractual terms. Submit a qualified written request (QWR) to the new servicer disputing the discrepancy and providing your original documentation. The servicer must respond within 30 days.
How do I file a complaint about my new servicer?
You can submit a complaint to the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov/complaint. You can also file a complaint with your state's attorney general or banking regulator. For specific loan issues, submit a qualified written request directly to the servicer under RESPA.
Can I prevent my loan from being transferred?
Generally, no. The right to transfer servicing is typically included in the loan documents. However, some portfolio lenders and credit unions retain servicing in-house. If retaining the same servicer is important to you, ask about servicing retention before choosing a lender.
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