I had to review the "hello-goodbye" letters for mortgages we are going to purchase. I dissected the sellers letter for our own peace of mind and am helping create ours to notify the borrower of the sale. We want a cordial letter, not a disclosure but I'll ensure required content exists.

The seller told some of our folks that because these are second mortgages, RESPA doesn't apply.

All of their disclosures are compliant with the exception of the letter they will send to the borrower notifying them of the sale. My folks question is if the content I say needs to be there, needs to be there. I don't see why this is exempt. 3500.5(b)(7) excludes secondary market transactions with the exception of "hello-goodbyes" under .21.

This is our first time doing this and they sounded confident. I asked one of my peers who was online late last night and he agreed with me. What do you think, am I missing something?

Andy, I agree with you. It definitely says "each transferor servicer and transferee servicer of any mortgage servicing loan shall deliver to the borrower a written Notice of Transfer".

Could it be that the Loan Servicing Disclosure itself, only applies to 1st mortgages?

§3500.21: Mortgage Servicing Transfers (05/01/96)
Mortgage servicing loan means a federally related mortgage loan, as that term is defined in §3500.2,

§3500.2: Definitions (04/01/98)
Federally related mortgage loan or mortgage loan means as follows:
(i) That is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property upon which there is either:

The Servicing Transfer Disclosure is only required for first lien transactions, however the Servicing Transfer Notice is required for all federally related mortgages.

So you are correct in that they may be confusing the two.

If you look at the definition of a mortgage servicing loan in 3500.21, it is defined as "a federally related mortgage loan...when the mortgage loan is secured by a first lien. The definition does not include subordinate lien loans or open-end lines of credit..."

This may be where they are hanging their hat and I would tend to agree.

It is always helpful to go back and remember WHY this requirement was put in place.

Con artists would target "unsophisticated" borrowers and send them a letter saying they had bought the borrowers loan and to start sending payments to the new lender. Some people did, and were in for a rude shock when they received a delinquency notice from the REAL lender. The con artists deposited the checks payable to their bogus lender, wired the money out, and then set up shop in the next town.

SO - to make sure people were not duped by this, the requirement was made that the SELLING lender and the PURCHASING lender both need to notify the borrower. Put this another way, if I got a notice on my second mortgage that you had bought my loan and that I needed to send my payments to you, my reaction would be "Not gonna happen until my existing lender confirms it."

But Anon is right. 3500.5(b)(7) says secondary mortgages don't apply, except for 3500.21.

.21 is all about mortgage servicing transfers and it defines mortgage servicing loans to exclude subordinate loans.

The best I can see without spending too much time on it, that leaves a few consumer protections under .21 which would apply exclusive of that definition. Responding to inquiries, damages and costs, timely payments and preemption of state laws.

That said, certainly it is a best practice to let the borrowers know who to pay and how to contact us.