When potential homeowners apply for home mortgages, many may think that the lender, or loan originator, will service the loan until the mortgage is paid off or the house is sold. This is seldom true.

In today's housing and mortgage market, mortgage servicing rights often are bought and sold—sometimes within days of closing with the lender.

In 1990, the National Affordable Housing Act was passed. It regulates mortgage service providers and sets guidelines by which mortgage service providers must abide, if they plan to operate.

Mortgage service provider responsibilities
Mortgage service providers collect monthly mortgage payments and handle home borrowers' escrow accounts.

Escrow accounts are funds that lenders establish in order to pay property taxes and/or hazard insurance when they become due on the home during the year.

When escrow accounts are first established with borrowers, mortgage service providers must provide borrowers with statements that indicate estimated annual property taxes, insurance premiums, and other charges that are anticipated during the next year, plus the estimated total of all of these payments.

In addition, the provider is required to give borrowers annual statements that detail the activities of escrow accounts, account balances, and payments made for taxes and/or insurance.

Housing Act requirements
All mortgage service providers must adhere to the guidelines and regulations established by the National Affordable Housing Act.

The following are the primary regulations by which mortgage service providers are governed.

1. Provide disclosure statements. Disclosure statements indicate whether the lender intends to sell mortgages to mortgage servicing companies and if so when, whether mortgages can be sold at anytime during the life of the loans, and the percentage of their mortgage loans lenders have previously sold. If borrowers do not sign disclosure statements, lenders cannot fund home mortgages.
   
2. Give proper notification when mortgages are going to be sold to mortgage servicing providers. If lenders plan to sell mortgages they must notify borrowers at least 15 days before the effective date of the transfer, unless borrowers received a written transfer notice at the time of closing. Under certain circumstances, lenders have up to 30 days after the effective date of transfer to send notification to borrowers. These include (1) Lenders terminating contracts because of loan defaults; (2) Mortgage service provider filing for bankruptcy; (3) The Federal Deposit Insurance Corporation or the Resolution Trust Corporation are in the process of taking over operations of the mortgage service provider; and (4) A grace period is granted for up to 60 days during the transfer of the mortgage.
   
3. Respond promptly to all written inquiries. If borrowers feel that they have been improperly charged a penalty or a late fee, or there is a problem with the mortgage servicing, borrowers can contact mortgage service providers in writing with inquiries or questions.
   
   Within 20 business days of receiving written inquiries, mortgage service providers must send a written response, acknowledging receipt of inquiries.
   
   Within 60 business days, providers must either correct the problem or give an explanation that details its accuracy and send a written statement that notifies borrowers of an action taken and why.
   
   CAUTION: Do not subtract any disputed amount from mortgage payments. This could be viewed by the provider as partial payment, which may or may not be acceptable. If not acceptable, borrowers could be charged a late fee, or providers could declare the mortgage to be in default and begin foreclosure proceedings.

Conclusion
If borrowers feel that mortgage service providers have not responded appropriately to a written inquiry or have not responded within the number of business days allocated by the National Affordable Housing Act, they can contact their local or state consumer protection office.

They should also contact the Department of Housing and Urban Development (HUD) and file a complaint under the National Affordable Housing Act, as well as with HUD's Office of Single Family Housing in Washington D.C.

Borrowers can also send complaints to the Correspondence Branch of the Federal Trade Commission in Washington D.C.

In addition, they should consult with their attorneys in order to be advised of their legal rights.