Your rights with mortgage servicing firms

Nation's Housing

March 09, 2003|By KENNETH HARNEY

A NEW consumer protection bill on Capitol Hill refocuses attention on an issue that touches millions of homeowners: their sometimes rocky relationships with the firms that "service" their mortgages.

Servicing means administering the monthly mechanics of your home loan - sending out statements, keeping track of your payments, assessing late fees, making disbursements from your escrow account, canceling private mortgage insurance, responding to complaints and requests for information.

Your servicer may well be a different company from the one that made you the loan. The servicer essentially handles all the workaday details of your loan and receives a fee from the owner of the loan to do so.

But what are your legal rights vis-a-vis your servicer? What happens when the servicer botches your escrow account and fails to make an on-time payment for your property insurance, property taxes or other fees? A failure like that could be catastrophic, leaving you uninsured against fire or storm damage to your home and technically in default on the terms of your mortgage.

A failure to pay property taxes could lead to a tax lien by your local government and even foreclosure.

A new legislative proposal in the House of Representatives would add accuracy and timeliness in escrow account disbursements to the list of legal rights that homeowners already have in connection with their home mortgages.

The bill, the Homeowners Escrow Payments Assurance Act (H.R. 650), would expose servicers to treble damage awards - three times the actual damages suffered by the homeowner - for any failure to make timely payments from escrow accounts for property insurance, taxes or other escrow items.

Sponsored by Democratic Rep. Robert E. Andrews of New Jersey, it also would expand borrowers' abilities to initiate class action lawsuits against their servicers for botched escrows, and would require fines of $1,000 per day for as long as a scheduled premium for property hazard insurance remained unpaid.

Andrews' bill, prompted by constituent complaints about escrow account foul-ups, would add sharp teeth to the federal mortgage and settlement rules that spell out consumers' mortgage rights.

What are those rights? You may not be fully aware of them, so here is a quick review.

For starters, Congress has enacted detailed requirements for handling complaint resolution between you and your servicer. Your servicer cannot - repeat, cannot - ignore or stall you when you ask for information or have a bone to pick about your loan account.

When you send a written request for information or assistance to your servicer regarding your loan, the servicer must send you back a written acknowledgement within 20 business days of receipt. Be sure to include your loan number, name and contact information in all correspondence.

No later than 60 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," according to federal rules. Equally important to you personally: During that 60-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 files or scores 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 to another company - a source of frustration and confusion for many borrowers.

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 the specific persons or departments at both the new and current servicer who are responsible for answering your questions. No later than 15 days after the transfer, the new servicer must contact you with information on how to make queries.

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 penalize you.

Ken Harney's e-mail address is

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