After the closing: HUD details borrowers' rights

NATIONS'S HOUSING

January 15, 1995|By Kenneth R. Harney

Washington -- The federal government has just put the finishing touches on rules that spell out key rights you have as a borrower once your mortgage loan has been closed.

Though the regulations focus primarily on the servicing of your loan -- the collection of monthly principal, interest and escrow payments by your original lender or another firm -- they also govern how questions or disputes should be handled on your mortgage account.

Issued by the Department of Housing and Urban Development (HUD) late last month, the rules will cover virtually every home mortgage in the United States beginning June 19. Interim guidelines have been pending since 1991, but the new rules represent the government's detailed, final requirements for lenders.

Here's what they say, and why they could prove important to you as a consumer. For starters, the rules prescribe a nationally standardized disclosure notice designed to alert you to your mortgage lender's servicing practices early on in the application process. Servicing can be a critical factor to you as the months go by after settlement -- especially if your original lender sells the rights to service your loan to somebody else.

The new firm, often located hundreds of miles away in another state, can botch up the record-keeping on your loan during the transfer, or apply different standards on how much you should have in your escrow account to cover taxes and insurance. Frequently they ask for more, having discovered a "shortage" in your account.

Worse yet, many borrowers in recent years have found that their servicing rights are sold several times -- occasionally even ending up in the hands of the Grim Reaper, the federal Resolution Trust Corp. (RTC), which took control of failed S&Ls and their servicing subsidiaries.

Under the new guidelines, you'll be warned up front about your lender's servicing plans for your loan. And, if you don't want to deal with a lender who routinely sells servicing rights, you can bail out at the application stage.

Either face-to-face over the application table or no later than three business days after you submit your application, you will have to be provided with a written disclosure that includes a "best estimate" from the lender of what will happen to your servicing -- either that it will be retained or transferred to some other firm. In addition, the lender must tell you what percentage of all the mortgages it makes in the next 12 months that it expects to sell and disclose the percentage of servicing rights it transferred during each of the past three years.

The new form also contains a summary of your rights as a borrower in your dealings with whomever ends up servicing your mortgage. Be sure to retain this long after you close: Not only does it spell out federally enforceable timetables for "complaint resolution" when you have problems with your loan account. It also reminds both you and your servicer that hefty federal fines can be imposed on firms that treat their mortgage customers cavalierly.

If you send a written request for information or assistance to your servicer regarding your loan, the servicer must send you back a written acknowledgment within 20 business days of receipt. No later than 60 business days after receipt of your request, the servicer "must make any appropriate corrections to your account, or must provide you with a written clarification regarding any dispute."

Equally important to you as a consumer: During that 60 business day period, your servicer is prohibited from reporting anything about the loan dispute to any credit bureau. Say, for example, that your servicer insists that your escrow account is deficient by $1,000 and demands higher monthly payments. You disagree and refuse to pay the higher charge. Under this rule, your servicer cannot mess up your credit rating by reporting that you've been delinquent for the past couple of months.

The rule also sets nationally uniform procedures for notifying you when your servicing is about to be transferred. No less than 15 days before the effective date of a change in servicing, your current servicer must send you the new servicer's name, address, toll-free or collect phone number, plus the names of a specific person or department at both the new and the current servicer who is responsible for answering your questions. No later than 15 days after the transfer, the new servicer must also contact you with information on how to handle questions.

Best yet: During the first 60 days after a servicing switch, if you mistakenly send your loan payment on time to your old servicer, your new servicer can't treat it as late and hit you with a penalty.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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