A mortgage servicer helps in processing loans and ensuring appropriate use of loan funds.
If you're applying for a mortgage, there's a good chance you'll work with a mortgage servicing company. A mortgage servicing company handles the day-to-day tasks of managing your loan and sends your mortgage statements. Learning how to interface with your mortgage servicing company can save you hassle down the road. Learn what it does and how to find the best mortgage rates.
Understanding Mortgage Servicing
A mortgage servicing company or mortgage servicer is a third party that helps process loans. The services it provides can include everything from ensuring you get the loan to verifying that you apply the loan amount for the intended purpose.
Mortgage services will track loan payments, send reminder notices in case of missed payments, and file foreclosure documents in case of default. These companies will be involved in any renegotiations of loan terms to prevent foreclosure. A mortgage servicer is with you every step of the way — from the initial application to paying off the loan in full.
Often, mortgage lenders, such as banks or financial companies, will act as the mortgage servicer. As long as the lender can handle deposits, it may service the loan directly. If the lender cannot hold deposits, it will use a mortgage servicing company.
How mortgage loans are serviced and the roles of banks and service companies can play is regulated on the state level. You should check your state's laws regarding mortgage servicing companies and lenders to understand the role they will play in your loan.
Who Is Involved With Mortgage Servicing?
Several parties are involved in mortgage servicing, each with a unique role. Here is how these will affect your mortgage.
- Servicer: The mortgage servicer handles all the mortgage administration, from application to collections and payments.
- Lender: The lender processes the loan's origination. The lender typically repackages mortgages on its books into securities and sells them to investors.
- Investor: Investors can buy mortgage securities and collect on the monthly interest borrowers pay.
- Regulator: The federal government regulates the mortgage industry through acts passed by Congress. In addition, the Federal Reserve supervises the banking industry, which extends to mortgage lenders. The Consumer Financial Protection Bureau (CFPB), provides accountability to enforce financial and consumer protection laws.
Mortgage Servicer vs. Lender
While a lender can be the mortgage servicer, that's not always the case. Traditionally, loan servicing was a core function of banks and mortgage lenders. Banks would offer the loans and handle the administration. However, once the practice of repackaging loans into securities was widespread, loan servicing became less profitable for banks than origination.
Loan servicing became a separate part of the loan business, opening a place for mortgage servicing companies. Loan servicing businesses require a significant record-keeping burden, which is mostly accomplished through technology and software. A lender originates the loan; a mortgage servicer deals with the administration, paperwork, and follow-up. In some cases, a bank acts as both the mortgage servicer and lender.
What Does a Mortgage Servicer Do?
A mortgage servicer processes payments, maintains your escrow account, and addresses any concerns. In the case of risk of foreclosure, the mortgage servicer will be involved in any negotiations. Here are the details of what a mortgage service does.
Process Your Payments
A mortgage servicer will process your payments. This includes collection and distribution to the relevant parties, namely, the lender, private mortgage insurance provider, and the relevant tax authorities. Your mortgage servicer sends your monthly statements, collects payments, and pays your property taxes and homeowners insurance.
Maintain Your Escrow Account
A mortgage servicer maintains an escrow account on your behalf. When your mortgage servicer collects your payment each month, it takes the portion for taxes and insurance and holds it in the escrow account until the payments are due. Then, it makes those payments on your behalf.
Address Your Loan Concerns
A mortgage server will answer questions and address your loan concerns. If you have questions about the loan or other details, such as the remaining principal amount, the mortgage servicer can help you. Your mortgage servicer will provide customer service related to your mortgage and hold your hand from the mortgage application to the final payment.
What Are Mortgage Servicing Rights (MSRs)?
Mortgage servicing rights (MSRs) refer to a contractual agreement. The original mortgage lender will often sell MSRs — or the right to service an existing mortgage — to a third party that specializes in the activities involved with servicing mortgages. Mortgage servicing companies may buy MSRs from lenders and collect related mortgage-servicing fees.
Why Should You Care as a Homebuyer?
Good mortgage servicing is essential for home buyers at every stage of the loan application process. They can help you secure a loan with more favorable terms and, if needed, renegotiate those terms in the future. If you face difficult times and risk defaulting on the mortgage, they can help you renegotiate payment terms to retain the home.
By providing mortgage administration, mortgage servicers are customer service providers, so you need to check the reviews on the mortgage service provider that the lender uses to ensure you find a reliable mortgage servicer.
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Choosing a Mortgage Servicing Company
The mortgage servicing company you choose will interface with you for all your payments, collections, and mortgage-related questions. Choosing a reliable mortgage-serving company assists with applying for a mortgage, following up with questions, and closing the loan. Learn more about the mortgage process for first-time homebuyers and how to choose a mortgage lender, then find the best mortgage lenders.
Frequently Asked Questions
Can I choose or change my mortgage servicer?
Lenders work with one or more mortgage servicers. While you can choose your lender, you cannot choose the mortgage servicer. If you’re unhappy with the servicer, you’ll need to refinance the loan with a new lender that uses a different mortgage servicing company.
What fees are associated with mortgage servicing?
Mortgage servicing usually comes with an annual servicing fee of 0.25% to 0.5% of the outstanding mortgage balance. Mortgage servicing fees are built into the mortgage payment.
Can a mortgage servicer foreclose on my home?
Yes, if a borrower fails to make payments after the set time, the mortgage servicer will start the foreclosure proceedings on the home.
About Alison Plaut
Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability. She has been writing for various non-profit organizations for 15+ years. When not writing, you will find her promoting education and meditation in the developing world, or hiking and enjoying nature.