Prospective homebuyers know that the first step to buying a home is typically contacting a mortgage lender to understand their budget and preapproved loan amount. The mortgage lender works with the prospective homebuyer throughout the entire process from getting preapproved, submitting offers to purchase a home, going under contract all the way through closing. Your lender has become someone you know well. Someone you now trust. But, what happens once the loan closes? It’s likely that the company that originated your loan at closing has transferred or sold the servicing rights of your loan to someone you've never dealt with during the process, a mortgage servicing company, to handle the administrative tasks. That's not a bad thing! Let's explain why.
Why are servicing rights sold to a mortgage servicing company?
Mortgage lenders are specialized in originating mortgage loans. Mortgage Lenders are organized to move very quickly through the origination process: getting buyers from preapproved to closing as fast as possible. They are highly knowledgeable in the rules and regulations prescribed by Freddie Mac, Fannie Mae and Ginnie Mae and have access to a wide variety of investors and products, which means they can provide the borrower with great rates and terms. The specialization that mortgage lenders place on being able to originate high quality loans at the fastest paces means that they are typically not in the best position to service a borrower’s loan after closing and instead will typically involve a mortgage servicing company instead.
How do you know if the loan (or servicing rights) have been sold to a mortgage servicing company?
The Consumer Financial Bureau of Protection (CFPB), who is responsible for protecting borrowers from deceptive and unfair practices, mandates that borrowers must receive written notice from their mortgage lender at least 15 days before their loan is transferred to a servicer. The notice will contain, among other things, (i) the date your loan is being transferred, (ii) the name and contact information for your servicer, and (iii) the date that you will no longer make payments to your mortgage lender/the date that the servicer will begin accepting payments.
What is a mortgage servicing company?
A mortgage servicing company (or mortgage loan servicer) plays an important role in the mortgage industry by ensuring that mortgage loans are being managed effectively and efficiently. They are responsible for managing the day-to-day aspects of a mortgage loan. This includes collecting and processing mortgage payments from borrowers and ensuring the terms of the mortgage are followed. Servicers will also assist in making sure your homeowners insurance is active/renewed, paying property taxes from any escrowed funds, responding to any questions the borrower may have, and delivering all tax documents (such as Form 1098s) to the borrower.
Servicers will help to resolve any issues that may arise during the term of the loan, such as getting a borrower who has had trouble making their payments back on track or working with borrowers who are in default on their mortgage. In the worst cases, the mortgage loan servicer may also be responsible for overseeing the foreclosure process.
In some cases, your mortgage lender may hold onto the servicing rights on your loan, which means that they are playing the role of the mortgage servicing company, and you’ll make payments to them for the life of the loan. Even if your mortgage lender serviced your loan, the team handling servicing would be in an entirely separate department and be completely unrelated to the team that originated your loan.
Should you care who your mortgage servicing company is?
The short answer is no. Mortgage servicing companies play a vital role in the mortgage industry, and even if a mortgage lender promises not to transfer the loan to a servicer, there is no guarantee that the loan won’t be transferred to a servicer at some point during the life of the loan. The borrower should instead be focused on the best loan option for them rather than what happens to the loan after origination. In most cases, the borrower will have minimal contact with the servicer because advances in automations and servicing platforms have made it easier than ever to set up autopay, upload documents and download tax statements with just the click of a button.
Conclusions
Mortgage servicing companies aren’t the enemy. In fact, because these companies are purpose-built to handle customer payments and correspondence effectively and efficiently after loan closing, they typically provide a significantly better customer service than your lender could if your lender serviced your loan. Getting a great rate and closing on time should be the focus for any prospective borrower/homebuyer when getting a home loan, not who services the loan after closing. If you want to discuss your loan options or get a better sense of where interest rates are today, give us a call at 512.881.5099 or apply now, and one of our loan officers will be in touch as soon as we receive the application.
