FTC FACTSfor Consumers

REAL ESTATE

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FEDERAL TRADE COMMISSION FOR THE CONSUMER

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W hen you apply for a home mortgage, you may think that the lender

will hold and service your loan until you pay it off or you sell your

house. That’s often not the case. In today’s market, loans and the

rights to service them often are bought and sold.

A home may be one of the most expensive purchases you ever

make, so it’s important to know who is handling your payments and

that your mortgage account is properly credited. The Federal Trade Commission

(FTC) wants you to know what a mortgage servicer does and what your rights are.

Mortgage Servicers: Their Responsibilities to You

A mortgage servicer is responsible for collecting your monthly loan payments and

crediting your account. A servicer also handles your escrow account, if you have one.

Escrow Accounts

An escrow account is a fund held by your servicer into which you pay money to cover

charges like property taxes and homeowners insurance. The escrow payments typically are included as part of your monthly mortgage payments. The servicer pays your

taxes and insurance as they become due during the year. If you do not have an escrow

account, you are responsible for paying your taxes and insurance and budgeting

accordingly.

The Real Estate Settlement Procedures Act (RESPA), enforced by the Department

of Housing and Urban Development, is the major law covering escrow accounts. If

your mortgage servicer administers an escrow account for you, the servicer is generally required to make escrow payments for taxes, insurance, and any other charges in

a timely manner. Within 45 days of establishing the account, the servicer must give

you a statement that clearly itemizes the estimated taxes, insurance premiums, and

other anticipated charges to be paid over the next 12 months, and the expected dates

and totals of those payments.

Mortgage Servicing:

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Facts for Consumers

Under RESPA, the mortgage servicer also is

required to give you a free annual statement that

details the activity of your escrow account. This

statement shows your account balance and reflects

payments for your property taxes, homeowners

insurance, and other charges.

Transfer of Servicing

If your loan is about to be sold, you generally get

two notices: one from your current mortgage

servicer; the other from the new servicer. Usually,

your current servicer must notify you at least 15

days before the effective date of the transfer,

unless you received a written transfer notice at

settlement. The effective date is when the first

mortgage payment is due at the new servicer’s

address. The new servicer must notify you within

15 days after the transfer has occurred.

The notices must include:

• the name and address of the new servicer.

• the date the current servicer will stop accepting your mortgage payments.

• the date the new servicer will begin accepting

your mortgage payments.

• toll-free or collect-call telephone numbers, for

the current and new mortgage servicer, for

information about the transfer.

• whether you can continue any optional insurance, such as credit life or disability insurance;

what action, if any, you must take to maintain

coverage; and whether the insurance terms

will change.

• a statement that the transfer will not affect any

terms or conditions of your mortgage, except

those directly related to the servicing of the

loan. For example, if your contract says you

were allowed to pay property taxes and

insurance premiums on your own, the new

servicer cannot demand that you establish an

escrow account.

There is a 60-day grace period after the transfer: during this time you cannot be charged a late

fee if you mistakenly send your mortgage payment

to the old servicer. In addition, the fact that your

new servicer may have received your payment late

as a result cannot be reported to a credit bureau.

Posting Payments

Some consumers have complained that they’ve

been charged late fees, even when they know they

made their payments on time. To help protect

yourself, keep good records of what you’ve paid,

including any billing statements, canceled checks,

or bank account statements. You also may check

your account history online if your servicer’s Web

site has this feature. If you have a dispute, continue to make your mortgage payments, but

challenge the servicing in writing (see Sample

Complaint Letter to Lender), and keep a copy of

the letter and any enclosures for your records.

Send your correspondence by certified mail, and

request a return receipt. Or send it by fax, and

keep a copy of the transmittal confirmation.

Force Placed Insurance

It’s important to maintain the required property

insurance on your home. If you don’t, your

servicer can buy insurance on your behalf. This

type of policy is known as force placed insurance;

it usually is more expensive than typical insurance;

and it provides less coverage. The primary purpose

of a force placed policy is to protect the mortgage

holder, not the property owner.

Review all correspondence you receive from

your mortgage servicer. Your mortgage servicer

may request that you provide a copy of your

property insurance policy. Respond promptly to

requests regarding property insurance, and keep

copies of all documents you send to your mortgage servicer.

If you believe there’s a paperwork error and

that your coverage is adequate, provide a copy of

your insurance policy to your servicer. Once the

servicer corrects the error, removes the force

placed coverage, and refunds the cost of the force

placed policy, make sure that any late fees or

interest you were charged as a result of the coverage also are removed.

Fees

Review your billing statements carefully to make

sure that any fees the servicer charges are legitimate. For example, the fees may have been authorized by the mortgage contract or by you to pay
Facts for Consumers

for a service. If you do not understand what the

fees are for, send a written inquiry and ask for an

itemization and explanation of the fees. Also, if

you call your mortgage servicer to request a

service, such as faxing copies of loan documents,

make sure you ask whether there is a fee for the

service and what it is.

Inquiries and Disputes

Under RESPA, your mortgage servicer must

respond promptly to written inquiries, known as

qualified written requests (see Sample Complaint

Letter to Lender). If you believe you’ve been

charged a penalty or late fee that you don’t owe, or

if you have other problems with the servicing of

your loan, contact your servicer in writing. Be sure

to include your account number and clearly

explain why you believe your account is incorrect.

Your inquiry should not be just a note on the

payment coupon supplied by your servicer, but

should be sent separately to the customer service

address.

Within 20 business days of receiving your

inquiry, the servicer must send you a written

response acknowledging it. Within 60 business

days, the servicer either must correct your account

or determine that it is accurate. The servicer must

send you a written notice of the action it took and

why, along with the name and telephone number

of someone you can contact for additional

assistance.

Do not subtract any disputed amount from

your mortgage payment. Some mortgage servicers

might refuse to accept what they consider to be

partial payments. They might return your check

and charge you a late fee, or claim that your

mortgage is in default and start foreclosure

proceedings.

Fair Debt Collection

By law, a debt collector is a person who regularly

collects debts owed to others. Your mortgage

servicer is considered a debt collector only if your

loan was in default when the servicer acquired it.

If that’s true, you have additional rights that you

can read about in the FTC’s brochure “Fair Debt

Collection.”

Sample Complaint Letter to Lender

The following is a sample qualified written

request from you, the borrower, to a lender.

Use this format to address complaints

under the Real Estate Settlement Procedures Act (RESPA).

Attention Customer Service:

Subject: Your loan number

Your Name

Your Address

Your City, State, Zip Code

This is a “qualified written request” under

Section 6 of the Real Estate Settlement

Procedures Act (RESPA).

I am writing because:

Describe the issue or the question you have

and/or what action you believe the lender

should take.

Attach copies of any related written

materials.

Describe any conversations with customer

service regarding the issue and to whom

you spoke.

Describe any previous steps you have

taken or attempts to resolve the issue.

List a day time telephone number in case a

customer service representative wishes to

contact you.

I understand that under Section 6 of RESPA

you are required to acknowledge my

request within 20 business days and must

try to resolve the issue within 60 business

days.

Sincerely,

Your name
Facts for Consumers

Your Credit Report

Many mortgage companies provide information

about your payment history to credit bureaus,

companies that maintain and sell consumer credit

reports — which contain information about your

credit payment history — to other creditors,

employers, insurers, and businesses. Both the

credit bureaus and the information provider have

responsibilities for correcting inaccurate or incomplete information.

If you believe that your mortgage servicer has

provided inaccurate information to a credit bureau,

contact the credit bureau and the servicer. Tell the

credit bureau in writing (see Sample Dispute

Letter to Credit Bureau) what information you

believe is inaccurate. Include copies (NOT originals) of documents that support your position. In

addition to providing your complete name and

address, your letter should clearly identify each

item in your report you dispute, state the facts, and

explain why you dispute the information, and

request deletion or correction. You may want to

enclose a copy of your report with the items in

question circled. Send your letter by certified mail,

return receipt requested, so you can document

what the credit bureau received. Keep copies of

your dispute letter and enclosures.

Credit bureaus must re-investigate the items in

question — usually within 30 days — unless they

consider your dispute frivolous. They also must

forward all relevant information you provide about

the dispute to the information provider. After the

information provider receives notice of a dispute

from the credit bureau, it must investigate, review

all relevant information provided by the credit

bureau, and report the results to the credit bureau.

If the information provider finds the disputed

information to be inaccurate, it must notify all

national credit bureaus so they can correct this

information in your file. Disputed information that

cannot be verified must be deleted from your file.

• If your report contains erroneous information,

the credit bureau must correct it.

• If an item is incomplete, the credit bureau

must complete it. For example, if your file

showed that you were late making payments,

Sample Dispute Letter to Credit Bureau

Date

Your Name

Your Address

Your City, State, Zip Code

Complaint Department

Name of Credit Reporting Agency

Address

City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following

information in my file. The items I dispute

also are encircled on the attached copy of

the report I received. (Identify item(s)

disputed by name of loan servicer and

loan number.)

This item is (inaccurate or incomplete)

because (describe what is inaccurate or

incomplete and why). I am requesting that

the item be deleted (or request another

specific change) to correct the information.

Enclosed are copies of (use this sentence

if applicable and describe any enclosed

documentation, such as payment records,

court documents) supporting my position.

Please re-investigate this (these)

matter(s) and (delete or correct) the

disputed item(s) as soon as possible.

Sincerely,

Your name

Enclosures: (List what you are enclosing)
but failed to show that you were no longer

delinquent, the credit bureau must show that

you’re current.

• If your file shows an account that belongs to

another person, the credit bureau must delete it.

When the re-investigation is complete, the

credit bureau must give you the written results and

a free copy of your report if the dispute results in a

change. If an item is changed or removed, the

credit bureau cannot put the disputed information

back in your file unless the information provider

verifies its accuracy and completeness, and the

credit bureau gives you a written notice that

includes the name, address, and phone number of

the provider.

Also, if you request it, the credit bureau must

send notices of corrections to anyone who received your report in the past six months. If a reinvestigation does not resolve your dispute, ask the

credit bureau to include your statement of the

dispute in your file and in future reports.

In addition to writing to the credit bureau, tell

the servicer in writing that you dispute an item.

Include copies (NOT originals) of the documents

that support your position. If a servicer specifies

an address for disputes, it is important to send

your dispute to that address. If the provider then

reports the item to any credit bureau, it must

include a notice of your dispute. If you are correct

— that is, if the disputed information is inaccurate

— the information provider may not report it

again.

If You Have a Complaint

If you believe your mortgage servicer has not

responded appropriately to your written inquiry,

contact your local or state consumer protection

office. You also should contact the Department of

Housing and Urban Development (HUD) to file a

complaint under the RESPA regulations. Write:

Office of RESPA and Interstate Land Sales,

Department of Housing and Urban Development,

451 Seventh Street, S.W., Room 9146, Washington, DC 20410.

In addition, you may want to contact an

attorney to advise you of your legal rights. Under

certain sections of the RESPA, consumers can

initiate lawsuits and obtain actual damages, plus

additional damages, for a pattern or practice of

noncompliance. In successful actions, consumers

also may obtain court costs and attorney’s fees.

You may want to contact a housing counselor

to discuss your situation. You can call HUD’s

hotline at 1-800-217-6970 for a referral to a local

HUD-approved housing counselor.

You also may wish to contact the FTC. The

FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the

marketplace and to provide information to help

consumers spot, stop, and avoid them. To file a

complaint or to get free information on consumer

issues, visit www.ftc.gov or call toll-free, 1-877-

FTC-HELP (1-877-382-4357); TTY: 1-866-653-

4261. The FTC enters Internet, telemarketing,

identity theft, and other fraud-related complaints

into Consumer Sentinel, a secure online database

available to hundreds of civil and criminal law

enforcement agencies in the U.S. and abroad.

Facts for Consumers

Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education

November 2003

F C EDERAL RADE OMMISSION T FTC OR HE ONSUMER

1-877-FTC-HELP www.ftc.gov