Mortgage servicing rights (MSR): What they are and what they mean for homeowners

When you get a mortgage, you probably expect to be working with that lender throughout the life of the loan. You might not have even heard of the term “mortgage servicing rights” until the moment you get a servicing transfer notice in the mail.

Mortgage servicing rights refer to the entity that manages your loan day-to-day rather than who owns the debt. A lender may sell these rights to another company, which means you’ll make payments to a different servicer while the original lender still retains ownership of your loan.

This article will walk you through what mortgage servicing rights are, why lenders sell them, and what you need to know when your loan is transferred to a new servicer.

What are mortgage servicing rights?

Mortgage servicing rights are the rights to manage the repayment of a mortgage loan on behalf of the owner of the loan. In many cases, lenders who originate mortgages do not actually want to deal with the daily management of the loans. Instead, they sell the rights to service mortgages to a specialized business called a mortgage servicing company.

These companies buy mortgage servicing rights and handle management of the loan. The original lender may retain ownership of the loan itself even after selling the servicing rights or may sell the loan to a new owner.

What mortgage servicers handle

Mortgage servicers handle the everyday tasks that are involved with managing a loan on behalf of that loan’s owner. That includes things like calculating interest and principal payments, receiving monthly mortgage payments, maintaining escrow accounts for property taxes and homeowners insurance, handling mortgage insurance fees, and keeping loan records.

Mortgage servicers also serve as the point of contact for the borrower. If you have a customer service-related question or need help with something like a payment plan or forbearance, you should reach out to your loan servicer.

It’s important to note that loan servicers simply manage the loan. They do not set or change details of the loan, such as its interest rate, balance, or repayment term.

How mortgage servicing rights work for homeowners

When you get a mortgage, you’ll start by working with a lender that originates the loan. By default, the lender owns the right to service loans that it originates. However, once you get the funds, the lender has the legal right to sell servicing rights to someone else.

Servicing transfers are quite common in the mortgage industry and are not anything for you to worry about. Details of your loan, such as the balance or interest rate, won’t change.

What it means when your mortgage servicing rights are sold

When your mortgage’s servicing rights are sold to a new loan servicer, the details about your loan don’t change. Things like your loan’s balance and the cost of the loan remain the same. The key difference is that a new entity will be handling the receipt of payments and any customer service questions you may have.

Under federal law, borrowers need to receive advance notice of a change in servicer, with both the previous and new loan servicers having to notify you in writing. Again, the terms of your loan won’t change, simply who manages the loan on behalf of the loan owner.

Mortgage servicing transfers are common and can happen for many reasons. Sometimes the lender wants to free up more time and money to originate additional mortgages. It does not indicate anything negative about you, your credit, or your finances.

If you get a loan service transfer notice in the mail, make sure to keep all the paperwork in your records and confirm any new payment details promptly to ensure a smooth transition.

Who buys mortgage servicing rights?

Mortgage servicing rights can be purchased by many different entities, including banks, specialized mortgage servicing companies, and non-bank groups. Some purchase these rights because they can collect a fee for managing the loans. Lenders and investors also buy and sell mortgage servicing rights and mortgage loans on the secondary mortgage market and package them into mortgage-backed securities (MBS) for investors.

If you own a home with a mortgage, odds are good that if your loan’s servicing rights are sold, they’ll be sold to another bank or a specialized servicing company. Not much will change about your borrowing experience beyond having to speak to a new company with any questions you have and possibly change where you send your monthly payments.

FAQ

Lenders sell mortgage servicing rights on a regular basis, so it’s important to understand how these rights work before you get a loan.

Does selling mortgage servicing rights change my interest rate or payment?

No, a change in who owns your mortgage servicing rights will have no impact on your interest rate or payment barring any unrelated changes to your loan, such as a refinance.

What’s the difference between my lender and my servicer?

Your lender is the entity that you worked with when applying for a loan and that funded the loan in the first place. The servicer is the entity that manages the day-to-day of your loan, such as collecting payments.

What should I do if I’m confused after a servicing transfer?

If you’re confused about a loan servicing transfer, start by reviewing any notices you received about the transfer and make sure to update your loan payment information to the new information that was provided to you. If you still have questions, contact your new servicer for help.

The bottom line: Mortgage servicing rights are related to who manages your loan

Changes in loan servicing rights are common, but they do not change the details of your loan. Instead, they affect the company that handles your mortgage on a day-to-day basis, meaning where you send payments and who you contact if you have questions. That means that if you have questions about a loan servicing change, you should reach out to your new servicer.

Rocket Mortgage services most of the loans it closes. If you’re considering applying for a loan, you can reach out to Rocket Mortgage today.