Mortgage Servicing

• Author: Daniel A Edelman
• Profession: Lawyer
• Pages: 17-18

17

Mortgage Servicing

CHAPTER

5

A mortgage “servicer” is the company to which the borrower is instructed to make periodic payments.

It is quite common to both sell mortgage loans and sell the right to collect or “service” loans. The consumer

is entitled to written notice of both a transfer of ownership of a mortgage loan (15 U.S.C. §1641(g)) and

a transfer of servicing of a mortgage loan (Real Estate Settlement Procedures Act, 12 U.S.C. §2605).

Mortgage servicers frequently commit errors in servicing loans. Some of these are accidental, whereas

some are not.

Borrowers do not have the right to select who will service their loans. Mortgage servicers compete

for the business of mortgage owners. They compete by offering to service the loans for a fee; the servicer

offering to service for the smallest fee gets the business. In addition, the servicers get to keep the “servic-

ing income” generated by the loans. The servicing income includes late fees, fees generated by the “forced

placement” of hazard insurance, property inspection fees, and similar fees. Mortgage companies therefore

have an incentive to increase the servicing income—the fees charged to the borrowers—in order to reduce

the amounts paid by the mortgage owners. This situation—called reverse competition by economists—

is very bad for borrowers because it gives the mortgage servicer an incentive to impose unauthorized,

improper, or inflated charges.

To curb some of the abuses, the law gives certain rights to borrowers.

A borrower has the right to submit a “qualified written request” or “notice of error” to a mortgage

company (12 U.S.C. §2605). You must send

such a notice or request to the address

specified for that purpose on the

monthly statement, not to the place

where payments are sent or to a gen-

eral correspondence address. Include

your name, address, Social Security

number, and loan number. State in

as much detail as possible what you

think the mortgage company has done

TIP

Submit a qualified written request

or notice of error to a mortgage

servicer every time you get a

statement or document that

you do not agree with or fully

understand.

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