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TRANSFERRING MORTGAGE ISN'T ALWAYS SMOOTH

When you mortgage is sold to a new servicer, you can get stuck in the gears of a huge, nationwide mortgage machine.

To maximize profits, mortgages are usually chopped into three parts: principal, interest and servicing.The principal and interest portions are pooled with those of other mortgages and sold to investors through such agencies as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).

The mortgage servicing is handled by a company that accepts your monthly payments, recalculates interest on adjustable-rate loans, pays property taxes and homeowners insurance from escrow accounts, and sends you and the Internal Revenue Service a year-end statement of how much interest you've paid.

Usually, you don't need to do anything more than put a new address sticker on your payment envelope.

But the handoff isn't always that smooth.

Potential glitches include unpaid homeowners insurance, unpaid property taxes, interest-rate foul-ups and tarnished credit records.

New federal regulations give borrowers some protections during the transition from one lender to another.

Your old lender is supposed to send you a "goodbye" letter at least 15 days before your first payment is due to a new servicer.

Your new lender must send you a "hello" letter within 15 days of the transfer.

The notices must include the effective date of the transfer and a name, address and toll-free or collect-call phone number for both institutions.

For 60 days after the transfer, you can't be charged a late fee if you sent your payment to the old servicer before the due date.

Question any significant changes in payment amount when your loan servicing changes hands.

There can be modest changes in the way different lenders handle the escrow account for property taxes and insurance. But your interest rate is forever governed by the terms of your original loan contract.

Be suspicious if you get a "hello" letter without any "goodbye." Con artists sometimes send fake notices directing people to send payments to a bogus lender.

Unsuspecting borrowers often discover the scam only when their legitimate servicer sends a late notice.

If you have any doubt, call your old servicer to confirm the transfer.