§2605 Servicing of Mortgage Loans and Administration of Escrow Accounts

Summary

Lenders and loan servicers must tell people applying for a federally related mortgage at the time of application if the company that handles the loan might be sold or moved to someone else. When servicing is actually transferred, the old servicer must send a written notice to the borrower telling them at least 15 days before the change, unless the transfer follows a contract termination for cause, the servicer’s bankruptcy, or FDIC/RTC conservatorship or receivership, in which case notice may be sent within 30 days after the transfer. If the borrower was told about the transfer at loan closing, those timing rules do not apply. The notice must give the transfer date, names and toll-free phone numbers for both the old and new servicers and contacts who can answer questions, the dates when each servicer will stop or start taking payments, whether optional insurance might be affected, and a statement that the loan’s terms do not change except for servicing details. The new servicer must also notify the borrower, usually within 15 days after the transfer, with the same information and the same exceptions. If a borrower sends a written dispute that identifies the account and explains the problem, the servicer must acknowledge it in writing within 5 business days and fully respond within 30 days (with one possible 15-day extension). The servicer must correct mistakes, explain findings, or provide requested information and give a contact name and phone number. For 60 days after a payment-dispute request, the servicer may not report late payments to credit bureaus. Payments sent to the old servicer during the 60 days after transfer, if received before the due date, cannot be charged a late fee or treated as late. Escrow payments for taxes and insurance must be paid on time, and any escrow balance when the loan ends must be returned or moved to a new loan’s escrow within 20 business days. Borrowers harmed by violations can recover actual damages, plus up to $2,000 for individual pattern failures; class-action damages are capped at $1,000,000 or 1% of the servicer’s net worth, and courts may award costs and reasonable attorney fees. Servicers may not force-place hazard insurance without proper notice, may not charge for valid written dispute responses, must accept reasonable proof of a borrower’s insurance, must stop force-placed insurance and refund overlapping premiums within 15 days of proof, and may only pass on bona fide, reasonable force-placed charges.