WASHINGTON - The Department of Housing and Urban Development is stepping up its efforts to protect consumers whose mortgage servicing is transferred from one lender to another.

Under a rule made final Monday, lenders must inform borrowers before and after such transfers. In addition, borrowers are protected for 60 days if they send their monthly checks to the old servicer.

The rule, issued under the Real Estate Settlement Practices Act, also makes clear that all borrowers may request information about their servicing account in writing and expect a timely answer.

"When you are a borrower, this is an important amount of money. This (rule) helps you keep an eye on it," said Grant Mitchell, senior lawyer for RESPA matters at the housing agency.

"Nobody else is going to do it for you," Mr. Mitchell said.

Servicing transfers have become commonplace as the origination and servicing of home loans increasingly become separate businesses.

Servicers collect monthly principal and interest payments, which they send on to investors; they also handle late notices and foreclosures as well as maintaining escrow accounts for the payment of taxes and insurance.

But while servicing has become big business, consumer rights have not kept pace, the government said this week. HUD hopes its new rule will help consumers catch up.

According to the rule, the lender selling servicing rights must give notice to the borrower at least 15 days before the transfer and the new servicer must write to the borrower within 15 days after the transfer.

If the monthly check is sent to the old servicer within 60 days after the transfer, no late fee may be imposed by the new servicer. Nor can the servicer send an adverse report to a credit bureau during this period if the check is sent to the old address.

In a press release, HUD said consumers had complained that their loans were being transferred around the country, leaving them in the dark about where to send their monthly payments.

In some cases, consumers said, their credit ratings have been damaged as a result.

In at least one case, HUD said, borrowers lost their property at a tax sale, unaware that their taxes had not been paid.

Individual borrowers, as well as a class of individuals, may sue for damages if a servicer does not comply with this rule, the government said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.