The Federal Reserve today approved an interim final rule that requires consumers to be notified in writing when their home loan changes hands.
The rule change, which became effective when the Helping Families Save Their Homes Act was enacted in May, requires that the purchaser or assignee who acquires a mortgage loan (either by sale or transfer) provide required disclosures to homeowners in writing within 30 days.
“For example, a covered person that acquires a mortgage loan on March 1 must mail or deliver the disclosures on or before March 31,” the Fed said in a statement.
A “covered person” includes any person or organization that acquires more than one existing mortgage loan in any 12-month period.
“However, if the covered person sells or assigns the loan to a third party on March 31 (or earlier), the covered person need not provide the disclosures, but subsequent purchasers would have to comply with the rule.”
The purpose here is to avoid sending out temporary ownership documentation that would likely just confuse the homeowner even more.
To allow time for necessary operational changes, the Fed said the new rule is optional for 60 days from the date of publication, though parties that acquire mortgage loans are still subject to the statute’s requirements.
In recent years, the originate-to-distribute model exploded in popularity, with most loans sold off to third parties on the secondary market quickly after funding.
The practice has caused a great deal of confusion for homeowners that often have no idea who actually owns their loan, especially when it comes time to apply for a loan modification.