What Are Mortgage Servicing Companies?

For most home buyers, working with a mortgage lender to get a loan is a necessary part of purchasing a home. But what happens to that loan after closing?

Once you close on your home, your servicer is your point of contact for anything and everything related to paying off your mortgage. This may not be the same entity that originally loaned you the money for a mortgage.

If you’re thinking of buying a house anytime in the future, it’s wise to be familiar with mortgage servicing companies and their role.

What Is A Mortgage Loan Servicer?

A mortgage servicer is a company that oversees the administrative tasks in connection with your mortgage after closing. These tasks can include processing monthly mortgage payments, responding to borrowers’ questions, sending out mortgage statements, managing escrow where it applies and providing loss mitigation options or initiating foreclosure if necessary.

Servicing rights are commonly sold to a third-party company that takes responsibility for ensuring that your mortgage loan gets paid back. However, in some cases, your mortgage lender will hold onto the servicing rights on your loan, and you’ll make payments to them for the life of the loan. In this case, your lender will also act as your servicer once you’ve closed on the loan.

Can Your Mortgage Servicer Change?

Your loan can end up being transferred to a different mortgage servicer. A servicing transfer is common. According to estimates by industry professionals, roughly a third of homeowners will experience a transfer.

Can You Choose Your Servicer?

Buyers can’t typically control who services their loan. However, it’s a good idea to know the name of your servicing company in the event that issues arise at any point during the loan’s repayment period, which is usually 30 or 15 years. Typically, though, the home buyer will barely interact with their servicing company unless there’s a problem.

Most reputable lenders use reputable servicing companies, which should give future homeowners some peace of mind and allow them to focus on finding the best loan option and lender.

Who Is Involved With Mortgage Servicing?

Mortgage servicing companies are just one piece of the loan equation. Here are the prominent entities involved in a loan:

• Servicer: The company that administers the home loan
• Lender: The mortgage company that lends out the money for the home loan
• Investor: The entity that owns the home loan
• Regulator: The agency ensuring that servicers follow federal protection laws and regulations

Mortgage Lender Vs. Servicer

While they might sound similar, mortgage lenders and servicers play different roles in the mortgage and home-buying process. You’ll want to understand the differences between the two.

Mortgage Lenders

To get a mortgage to buy a house, you’ll need to work with a lender. This could be a bank, credit union or other financial institution that offers home loans for consumers.

When you apply for a mortgage, the lender will check your credit history and credit score, and they’ll ask you to provide documentation showing you can pay back the loan. If you meet the lender’s requirements, they’ll preapprove you for an amount of money based on what your finances can handle. Then, once you find a house and make an offer, the lender will approve you for a mortgage amount based on what a professional appraiser says the home is worth.

When you close on your home, the lender will disburse the funds needed to complete the transaction (in addition to the money you’ve contributed as part of your down payment and closing costs).

Servicers

Servicing takes place after you’ve closed and are the legal owner of your new home. Your original lender may do the servicing, or it may be handed off to a third party.

If the servicing rights to your loan are sold, you’ll be notified at closing or at least 15 days before your first payment with the new servicer is due. After the transfer, you’ll get a 60-day grace period during which you won’t be charged a late fee if you accidentally send your monthly payment to your former servicer instead of your new one.

When you’re transferred to a new servicer, your loan’s original conditions won’t change except for those conditions directly related to the servicing of the loan.

What Do Mortgage Loan Servicing Companies Do In Real Estate?

Now that you have a basic understanding of what a mortgage loan servicer is, it’s important to fully comprehend their role.

Process Your Payments

A mortgage servicer’s main job is to make sure that your account is credited for every payment you make and that everyone who has a stake in your monthly mortgage payment gets paid. Though you might only send a single housing payment to your servicer each month, several entities typically get a piece of it. These can include:

• The investor, or owner of the loan: This is who owns the loan. Most lenders tend not to hold onto their loans for the entire repayment term; selling their loans to investors allows them to free up funds that help them continue lending to other prospective home buyers.
• Your local government: Taxes, such as property taxes, are paid to your local government.
• Insurance companies: Any insurance you pay – whether it be flood insurance, homeowners insurance or mortgage insurance – must be distributed.
• The servicer itself: Mortgage servicers are paid from a portion of your monthly mortgage payment. It’s possible you could also have to pay additional servicing fees, such as late fees, but you typically won’t need to worry about a separate payment.

Your servicer may pay these entities out of an escrow account on your behalf when your payments are due.

Each year, your servicer will send you an escrow statement detailing all the payments made from the account and letting you know if you owe money for a shortage. The statement will also note any aspects of the account that will change in the coming year.

Answer Your Loan Questions

In addition to handling your monthly payments, tracking the amount you’ve paid toward principal and interest, and managing your escrow account, your servicer will be your source if you have any questions related to your loan (such as how to cancel mortgage insurance) or you’re struggling to stay on top of your payments.

As long as you communicate with your servicer, they will typically work with you on loss mitigation options if you can’t make your loan payments. For example, they might allow you to stay in your home by way of a loan modification or forbearance. If you can no longer afford to stay in the home, your options could include a short sale or deed in lieu of foreclosure.

If foreclosure becomes necessary, your servicer will be the one to initiate it.

The Bottom Line

After closing, your servicer is your source for everything mortgage-related. Be sure to familiarize yourself with who your servicer is and always pay special attention to any communication you receive about your mortgage. If your servicer changes, you’ll want to be certain you’re sending payments to the right company.

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