What Are Mortgage Servicing Companies?
Molly Grace4-minute read
November 21, 2022
For most home buyers, working with a mortgage lender is a necessary part of the process of getting a loan for and closing on a home. But what happens to that loan after closing?
After you close on your home, your servicer is your point of contact for anything and everything related to paying off your mortgage. This may or may not be the same entity that loaned you the mortgage in the first place.
Here’s everything you need to know about mortgage servicing companies.
What Is A Mortgage Loan Servicer?
A mortgage servicer is a company that oversees the administrative tasks regarding 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.
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.
Sometimes, however, the servicing rights are sold to a third-party company which then takes over the responsibility of ensuring the loan is paid back.
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 person who owns the home loan.
- Regulator: The person who ensures that servicers follow federal protection laws and regulations.
Mortgage Lender Vs. Servicer
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 run a check on your credit history and credit score, and will ask you to provide documentation that shows 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 disperse the funds needed to complete the transaction (in addition to the money you’ve contributed as part of your down payment and closing costs).
Choosing the right mortgage lender is important; be sure to shop around and compare things like offerings, interest rates and fees from multiple lenders.
Servicing is what happens after you’ve closed and are the legal owner of your new home. Servicing may be done by your original lender, or it may be handed off to a third party.
If the servicing rights to your loan are sold, you’ll be notified either 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 terms and conditions won’t change except for those directly related to the servicing of the loan.
What Do Mortgage Loan Servicing Companies Do In Real Estate?
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.
The first entity is the investor, or owner of the loan. Not to be confused with the servicer, who owns the servicing rights, the investor is the entity that owns the loan itself. Most lenders tend not to hold onto their loans for the entire term; selling their loans to investors allows them to free up funds to continue lending mortgages to other consumers.
Depending on your loan, a couple of other entities may also factor into who gets a piece of your payment, taxes and insurance. Taxes, such as your property tax, are paid to your local government and insurance goes to your insurance company.
If these payments aren’t due monthly, your servicer may keep this portion of your payment in an escrow account and pay these entities out of the account on your behalf when your payments are due.
Each year, your servicer will send you an escrow statement that details all the payments made out of the account and lets you know if you owe money for a shortage or whether any aspects of the account will change in the coming year.
In addition to handling your monthly payments, tracking the amount you’ve paid towards principal and interest and managing your escrow account, your servicer will be the one you’ll turn to if you have any questions related to your loan (such as how to cancel mortgage insurance) or if you’re struggling to stay on top of your payments.
As long as you communicate with them, your servicer will typically work with you on loss mitigation options if you can’t make your loan payments. This might include options that allow you to stay in your home, like a loan modification or forbearance, or, if you can no longer afford to stay in the home, it could include things like a short sale or deed in lieu of foreclosure.
If necessary, your servicer will be the one to initiate foreclosure.
Should You Care Who Your Mortgage Servicing Company Is?
As we’ve discussed, mortgage servicing companies are necessary because they manage your home loan – but it’s also important to understand that the home buyer should be more interested in choosing the best loan option and lender for them. Buyers can’t typically control who services their loan but need to be aware of who their servicing company is in case there are issues during the serviced life of the loan. In most cases, the home buyer will barely interact with their servicing company unless there is a problem; most reputable lenders will use reputable servicing companies.
The Bottom Line
After closing, your servicer is your go-to for everything related to your mortgage. Be sure to familiarize yourself with who your servicer is and always pay special attention to any communication you receive regarding your mortgage – if your servicer changes, you’ll want to be certain you’re sending payments to the right company.
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