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Oct 2017

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.