Explaining the Home Loan Process Part 6: Understanding a Loan Transfer

You’ve secured your home loan and made the purchase you’ve been waiting for! From the application to underwriting to closing, you’ve completed every step of the mortgage process. 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 final segment of our Explaining the Home Loan Process series, we’ll cover the loan servicing transfer process.

Loan Servicing Definition and Overview

Loan servicing is the administrative process of managing and collecting payments on a loan after it has been originated. It typically includes the following tasks:

• Collecting payments, including principal, interest and any taxes or insurance escrowed in the loan
• Maintaining loan balance records
• Reporting payment history to credit bureaus
• Handling delinquencies and working with the borrower to help avoid foreclosure
• Answering borrower inquiries

What Is a Loan Service Transfer?

A loan service transfer is when your lender hands 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.

Reasons for Loan Service Transfer

Loan service transfers are typical in the industry. Some of the common reasons why a mortgage originator transfers the loan to servicing include:

• Lack of expertise to effectively service loans
• To free up capital and recoup the costs of originating the mortgage so they can continue to fund more loans
• To reduce the risk of managing delinquent accounts and defaults

If You Have a Pennymac Mortgage, Your Servicing Stays With Pennymac

It’s important to note that while many mortgage lenders sell your loan after it funds, Pennymac stays with you for the life of your loan for a stable and reliable borrowing experience. We build relationships with our homeowners and give them a consistent point of contact for questions and assistance. Plus, since we understand your financial history, we can continually meet your needs by optimizing processes and implementing additional services for you.

Impact on Borrowers

A loan service transfer will not impact your initial mortgage agreement in any way. Your loan amount, interest rate, contractual payment obligation and payment schedule will remain unchanged. The only change resulting from this transfer will be where you send your monthly mortgage payment.

Significance of Loan Service Transfers in the Mortgage Industry

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.

A loan service transfer could take place at any time during the life of your loan. Sometimes, loan servicing can be transferred right after closing, even before you make your first payment. 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.

Notification and Communication: Legal Requirements and Timing

All lenders are required to disclose whether your loan will be sold, as well as the percentage of loans that they typically sell. The Real Estate Settlement Procedures Act, the Truth in Lending Act and federal laws on banks and banking protect borrowers by requiring clear notice and offering a 60-day grace period before payments begin.

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 “welcome” letter

Both documents will contain information regarding the impending transfer, including the new mortgage company’s name, location and phone number. 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.

Understanding the Role of Loan Servicers

Once your loan is transferred, the servicing company will take over the administration of your loan. They will be responsible for:

• Timely and accurate payment processing and maintaining records of each transaction
• Managing escrow accounts and disbursing payments for taxes, insurance and HOA fees
• Distributing funds to various entities, including investors who own the loan, property tax authorities and insurance companies
• Tracking loan balance ensuring transparency
• Generating monthly statements on loan activity, interest accrued and any fees or adjustments
• Reporting borrowers' payment history to credit bureaus
• Intervening in the case of delinquency
• Acting as the primary point of contact for borrowers and providing support, including sharing information about loan terms, payment options and available assistance programs
• Handling disputes related to loan statements, fees or other issues, ensuring fair and timely resolution for borrowers
• Complying with a complex set of regulations governing loan servicing practices, including those related to consumer protection laws, fair lending standards and data privacy regulations
• Adhering to reporting requirements

How Loan Servicers Interact With Borrowers

Loan servicers interact with borrowers throughout the life of the loan by:

• Delivering statements about account activity
• Managing customer service inquiries
• Handling disputes
• Helping borrowers resolve delinquencies
• Notifying borrowers of upcoming due dates, changes in interest rates or other updates
• Communicating modifications or adjustments regarding the escrow account

Potential Changes for Borrowers

When your loan is transferred, virtually everything about your mortgage will stay the same except for the payment address and customer service contact. For example, a loan service transfer will not impact your:

• Loan amount
• Loan type
• Loan conditions
• Loan balance
• Interest rate
• Contractual payment obligation
• Payment schedule

A loan service transfer will impact:

• Who you make your payment to
• Payment address
• Customer service contact information
• Your online account access

The new servicer may also offer different payment methods. You’ll need to review your new options and update your payment method if necessary.

How to Navigate a Loan Service 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 and Review Your Transfer Notices

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

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, send your next check to the new servicer at the address listed in the welcome letter.

Review Homeowners Insurance Policy

Your loan servicer will likely let your homeowners insurance company know that your loan has been transferred to a new servicer. But check your next policy renewal notice to verify the change has been made. If it's not, contact your insurance company and ask them to update your loan servicing information.

Check for Errors and Discrepancies

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

Regulatory Framework and Protections

When your mortgage loan is transferred to a new servicer, it can be helpful to understand the regulatory framework governing this process and your protections as a borrower.

Several key laws and regulations govern the transfer of mortgage servicing rights:

• Real Estate Settlement Procedures Act (RESPA): Requires lenders to provide borrowers with a Mortgage Servicing Disclosure Statement explaining their intent to service the loan or transfer it. It also sets standards for timely and accurate communication during the transfer process.
• Truth in Lending Act (TILA): Ensures borrowers receive clear and accurate information about their loans, including a 3-day right to rescind the transfer if they receive inaccurate disclosures.

The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) also outline rules that loan servicers must follow. Rules range from treating you with respect and fairness and responding to complaints promptly and professionally to protecting consumers from unfair and deceptive practices.

Common Concerns

Let’s look at some common concerns borrowers have about a loan service transfer and tips for avoiding or resolving them.

Missing or Lost Information and Documents

Once you’re notified of the transfer, check that your servicer has your current contact information. Carefully review the new servicing agreement and any other documents provided by the new servicer for accuracy. Ensure you understand the process, new contact information and any changes to payment methods.

Fear That Loan Terms Will Change

A loan service transfer does not change your loan term, type or conditions, interest rates or existing assistance programs. Contact your new service provider if you have any questions.

Late Payments

To ensure your payments arrive on time, carefully review all communications from your new servicer, especially regarding payment deadlines. If you have any questions about whom to pay, when payments are due or how to make them, don't hesitate to contact your new servicer directly.

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 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.

Frequently Asked Questions About Loan Service Transfers

Understanding loan servicing transfers can help you feel prepared when your mortgage changes hands. Here are some frequently asked questions about this common occurrence.

Will the Loan Terms and Interest Rates Remain the Same?

Yes. A loan service transfer does not affect your loan terms, type, conditions or interest rate. Once your transfer is complete, you shouldn’t notice any changes with your mortgage — other than where you send your monthly payments.

Will the New Servicer Accept Existing Payment Methods?

Verify with the new servicer whether they accept existing online accounts, payment platforms or mail-in payments.

What Should I Do if I Notice Discrepancies in Documents, Payments or Account Statements?

Immediately report any discrepancies to the new servicer to avoid late fees and credit score damage.

Will My Loan Servicer Change Again?

Maybe. Transferring the servicing of a loan is common, so your loan servicing could be transferred again in the future.

Tips for Borrowers

Whether you're a first-time homebuyer or an experienced homeowner, these tips can help you effectively deal with servicers, ensuring that your mortgage experience remains transparent and manageable.

Stay Informed About Your Loan

Whether your loan is transferred or not, staying informed about your mortgage is important for ensuring financial stability, avoiding potential issues and making informed decisions. Take control of your finances by regularly reviewing your statements, understanding your loan terms and actively monitoring your escrow account to ensure accurate payments and sufficient funds.

You'll also want to read and respond promptly to your loan servicer's mail or emails. These communications may contain important information about changes to your loan terms, escrow adjustments or other matters.

Engage in Proactive Communication With Loan Servicers

If your mortgage is being transferred, be proactive by asking questions to facilitate a smooth transition. Reach out to your existing and new service providers for clarification on anything you need help understanding and to gather copies of all loan-related documents. Confirm new payment information and report any discrepancies in payments or account statements to avoid late fees and credit score issues.

Review Loan Documents

As a borrower, it is your responsibility to understand your loan. Look closely at your new mortgage servicer's statement to ensure everything is correct. If you notice any discrepancies, don't hesitate to inform them immediately.

Moving Forward With Your New Lender

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.

Has your mortgage been transferred to Pennymac? Contact a Pennymac Loan Expert today. Our highly trained staff will answer any questions you may have on loan servicing or any other portion of the mortgage process.

Jump to...

• Explaining the Home Loan Process Part 1: Getting Prepped
• Explaining the Home Loan Process Part 2: Completing a Home Loan Application Form
• Explaining the Home Loan Process Part 3: Working with a Loan Processor and Mortgage Processing
• Explaining the Home Loan Process Part 4: Mortgage Underwriting
• Explaining the Home Loan Process Part 5: The Closing Process
• Explaining the Home Loan Process Part 6: Understanding a Loan Transfer

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