Odds Are Good Your Home Mortgage May Have Moved

Do you know where your home loan is?

There’s a 75% chance that the lender you dealt with when your home loan was originated is no longer the owner of your loan. Your loan may have been sold in the so-called secondary market or your lender may have sold off servicing rights to the loan, possibly leaving you at the mercy of a servicing agent you don’t know anything about.

All this can happen to the most educated of borrowers. Sam Lyons, a senior vice president at Great Western Bank in Chatsworth, refinanced his West Hills residence about a year ago through a mortgage broker not affiliated with Great Western. Within a few months, Lyons’ loan was sold to another mortgage broker. A few months after that, Lyons recalled, he received a new book of payment coupons along with a letter informing him that another company was servicing the loan. A few more months went by and Lyons received yet another book of coupons and yet another letter saying that the service on his loan had been transferred again.

Lyons’ loan is now being handled by an East Coast loan-servicing center. “It’s always traumatic when you receive these notices in the mail,” Lyons said. “You wonder if these folks will serve you properly.” A change in the ownership of a loan usually doesn’t make too much of a difference to the borrower, Lyons said, but a change in the servicing company can get confusing when it comes to writing the mortgage check or correcting mistakes. “I’m lucky that I know exactly what to do,” Lyons said. “But it would be confusing for someone not in the business.”

Borrowers who receive a notice about change in servicing of their loan should read the letter carefully and be sure of the correct address to send their mortgage payments. It’s also advisable to ask the new servicer for a principal payment schedule so the borrower can be sure that the new service company is using the same calculations as the old one.

Last year, about $637 billion in residential loans were sold in the secondary market. Loans that conform with the $203,150 Fannie Mae or Freddie Mac limit are often sold in the form of securities known as mortgage-backed securities and as participation certificates, respectively. Federal Housing Administration and Veterans Administration loans are turned into pools of mortgages. These mortgage securities are bought by Wall Street investors and the money generated by selling these loans is used by lenders to make new loans.

“First-time borrowers don’t ask about the secondary market, but more experienced borrowers do ask,” said Bruce G. Norman, executive vice president of First Mortgage Corp., which has an office in Ventura. “The secondary-service market certainly affects borrowers.”

First Mortgage generated about $500 million in mortgages last year, Norman said. His company sells the loans but retains the servicing rights. Lenders that retain the loans they originate are known as portfolio lenders. Usually, these portfolio lenders will keep the servicing rights to their loans too, but that’s not always the case, Norman said. “These servicing rights are sold back and forth.”

What difference can all this ping-ponging make? If the loan is being serviced by some faraway servicing company, the borrower might have a tougher time correcting mistakes in the calculation of an adjustable-rate loan, for example. If the loan itself is sold, it’s the new owner that gets to decide whether to be flexible with the borrower.

Keith Myers was lucky that his loan wasn’t sold when he approached his lender about reducing the interest rate on his three-year-old home loan. Most of the equity Myers had in his Granada Hills residence has been eroded by declining prices; he knew he didn’t have much chance of being approved for a refinance.

Myers, a Northridge real estate agent, called his lender, Sears Mortgage, and asked if he could get a break on his 10.375% fixed-rate loan. While Sears wasn’t obliged to lower the interest rate on Myers’ loan, he was a good borrower and the lender decided it was better to lower his interest rate than to lose him as a customer. Sears had retained the mortgage in its own portfolio and so it had the flexibility to lower the rate to 8.375%. “If Sears was just servicing the loan, they couldn’t have lowered the rate for me,” Myers said.

Borrowers are now required by federal law to receive a Mortgage Service Transfer Disclosure Form when they are in the midst of getting a new loan. This form tells borrowers about how a lender must inform the borrower at least 15 days before a service transfer. Also, during the 60-day period following transfer of the loan servicing, a loan payment received by the old servicer before its due date cannot be treated by the new loan servicer as late, and a late fee cannot be imposed.

One of the most important provisions of the recent federal Real Estate Settlement Procedures Act is that a lender or mortgage banker must give the borrower an estimate of the chances that the loan will be transferred. That estimate has to be based on the lender’s prior track record. While borrowers can’t prevent a transfer of their loan or of the servicing, borrowers can avoid lenders that transfer most or all of their loans.

“People need to be more aware of the history of the lender,” said Carolyn Philmon, senior vice president at Coast Federal Bank, a Granada Hills-based savings and loan. Coast sells about 40% of its loans, but only transfers the servicing on 1% of its total loans. “When we have a servicing sale, the borrower will hopefully not be affected,” Philmon said. But he conceded that some confusion is inevitable. “A lot of people feel betrayed because they don’t understand how the market works today.”