§2605 Servicing of Mortgage Loans and Administration of Escrow Accounts

Summary

Requires lenders and loan servicers to tell borrowers if loan servicing may be moved to someone else and to give clear written notice when servicing actually shifts. At application, borrowers must be told that servicing might be sold or transferred. When servicing is transferred, the old servicer must notify the borrower at least 15 days before the transfer unless the transfer follows a firing for cause, bankruptcy, or FDIC/RTC action — in those cases the notice can come up to 30 days after the transfer. If the lender gave a written notice at closing, those timing rules do not apply. The notice must say the transfer date, the new servicer’s name, address, and toll-free (or collect) phone number, who to call at both the old and new servicer, when each will stop or start taking payments, whether optional insurance (like mortgage life or disability) is affected, and that only servicing-related terms change. If the new servicer gets the loan, it must also notify the borrower, usually within 15 days after the transfer (or up to 30 days after in the same special situations), and include the same information. Payments sent to the old servicer before their due date during the first 60 days after transfer cannot be treated as late or charged a late fee. Borrowers can send a qualified written request (QWR) for servicing information; the servicer must acknowledge it in 5 business days (excluding Saturdays, Sundays, and legal holidays) and must investigate and reply in 30 business days, with one 15-day extension allowed if the borrower is told why. While a payment-dispute QWR is being handled, the servicer may not report that overdue payment to credit agencies for 60 days. Servicers must pay escrowed taxes and insurance on time and return escrow balances within 20 business days after payoff (or credit them to a new loan with the same lender). Rules limit when servicers can buy “force-placed” hazard insurance: they must send two written notices by first-class mail (the second at least 30 days after the first), give the borrower 15 days after the second notice to show coverage, accept reasonable proof, and cancel and refund overlapping force-placed premiums within 15 days of getting proof. Failures to follow these rules can lead to actual damages, possible extra damages (up to $2,000 for individuals), class-action limits, and recovery of costs and attorney fees. The Bureau of Consumer Financial Protection will make the detailed rules and a model disclosure, and federal compliance counts as meeting state notice laws. Definitions: “effective date of transfer” is when payments first go to the new servicer; “servicer” is the party that handles loan payments and accounts; “servicing” means taking payments and making required payments like taxes and insurance.