What Is Mortgage Servicing?
The mortgage process can be complex, with lots of moving pieces. To better understand the mortgage process, it’s important to know the key players involved. For example, you have the loan originator (also referred to as the lender or loan officer), mortgage servicer, and the investors, such as Fannie Mae, Freddie Mac, and Ginnie Mae. All of these parties ensure that the money is available to lend and that the loan is repaid properly.
How lenders, mortgage servicers, and investors work together
Simply put, lenders are the organizations that lend you money to buy a house. Lenders, or loan officers, do the leg work in the beginning of the process to originate a loan. Some lenders are able to service their own loans or a portion of their own loans, while others only temporarily finance loans and sell them to mortgage servicers soon after your loan closes. Mortgage servicers are the institutions that pick up the process after your loan is originated. They’ll collect your monthly payments and make sure everything is disbursed properly, including the following:
The investor that owns the loan, such as Fannie Mae and Freddie Mac who focuses on principal and interest
The government in regards to taxes
The mortgage insurer regarding mortgage insurance premiums
The insurer for any homeownership insurance premiums
The HOA for condo or homeownership dues
Then you have investors, such as Fannie Mae, Freddie Mac and Ginnie Mae. These are private companies and are sometimes also called “secondary market lenders.” They essentially back loans and set regulations and guidelines — ultimately helping make homeownership more accessible. These investors collect the interest you pay and then provide lenders with money to originate loans.
Mortgage servicing
It’s clearer now what lenders do (they lend money and originate mortgages), and it’s also easy to understand an investor’s role in the mortgage process (they help make homeownership and lending a possibility). But mortgage servicing can seem confusing at first if you get notified that your loan has been sold.
Keep in mind, lenders could also service mortgages, but mortgage servicers do not lend.
So, it doesn’t quite work vice versa. Ultimately, mortgage servicers process your mortgage over it’s course of 15-30 years. Not only do they collect the payments from borrowers and distribute accordingly, but they also assist in other ways. For example, mortgage servicers will:
Send the annual mortgage statement. This statement outlines the portions of your mortgage payments and how they were distributed to your principal, interest, taxes and insurance. It could also outline any taxes and insurance adjustments expected in the upcoming year.
Assist in any delinquency issues — if you miss any of your monthly mortgage payments. They may be able to defer principal and interest payments, in case you’re experiencing financial difficulties and need the help. Common delinquencies may result in a foreclosure. This is also something the mortgage servicer will handle.
Why loans are sold to mortgage servicers
As mentioned above, lenders may sell loans to mortgage servicers or investors. They’ll temporarily finance the loan and then sell them. There are many reasons why a lender may choose to release servicing. The main reason for selling a loan is because many lenders don’t have the resources to retain servicing on all the loans they fund. As they sell, lenders can either release servicing, meaning mortgage servicers will take over after your loan has closed, or they can sell but retain servicing, which can be done primarily when selling to Fannie Mae and Freddie Mac.
Keep in mind, it’s also possible for some lenders to not sell at all.
What does that mean for you as a borrower? In some cases, it means you might have someone else manage the servicing of your loan after you close and therefore you’ll send your monthly mortgage payments to that servicer. But if your lender retains your loan, you’ll continue to send your payments to the same place, so nothing changes. As far as your loan terms and conditions, those things don’t change regardless if the lender releases or retains servicing after selling. So you can expect the same monthly payments previously documented on your loan agreement.
Frequently Asked Questions
Chances are, if you're wondering about it, someone else has too. Here are answers to some of the questions we hear most often.
Mortgage servicing is the ongoing management of a home loan after it’soriginated. The servicer collects your monthly payment and distributes it to the appropriate parties, including the investor that owns the loan, the taxing authority, the mortgage insurer, and your homeowners insurance carrier. Servicing typically continues for the full life of the loan.
A lender originates the loan, meaning it evaluates your application and provides the money to buy the home. A servicer manages the loan after closing and does not lend money. A lender may also service its own loans, but the relationship does not work in reverse. Your Mortgage Bankerworks on the origination side and can explain what to expect once your loan moves into servicing.
A servicer collects your monthly payment and disburses the pieces correctly, sends an annual mortgage statement showing how payments were applied to principal, interest, taxes, and insurance, and manages yourescrow account. Servicers also assist borrowers who fall behind and may be able to discuss options if you are experiencing financial difficulty.
These are the investors, sometimes called secondary market lenders, that back loans and set many of the guidelines lenders to follow. They collect the interest paid on loans and provide lenders with the funds to originate new ones. You can read more about how these investors work and why their guidelines shape the loan programs available to you.
The most common reason is capacity. Many lenders don’t have the resources to retainservicing on every loan they fund, so they sell servicing rights to recoup costs and keep lending. A lender may release servicing entirely, sell the loan but retain servicing, or in some cases do not sell at all. None of these outcomes reflect anything about you as a borrower.
No. The terms and conditions documented in your loan agreement generally stay the same whether the lender releases or retains servicing. Your payment amount for principal and interest does not change because of a transfer. What may change over time is the escrow portion, which can adjust when taxes or insurance premiums change.
If servicing transfers, you should typically receive a welcome letter from the new servicer with payment instructions and a goodbye letter from the previous one. Your monthly statement also identifies the servicer. If a notice looks suspicious, confirm it with your lender or your current servicer using contact information you already have rather than the details printed in the letter.
The core servicing relationship is governed by federal rules and investor guidelines, so it works substantially the same across Atlantic Bay's markets. What does differ by state and county is what the servicer pays out of escrow, since property tax rates and insurance costs vary considerably between Virginia Beach, Hampton Roads, Charlotte, Raleigh, and Atlanta. Coastal homeowners with flood or windstorm coverage often see the largest escrow differences.