Mortgage Servicing
Mortgage servicing is a critical aspect of mortgage banking involving the management of all operational tasks associated with a mortgage loan. These tasks extend from collecting monthly mortgage payments, handling property tax and insurance payments, to ensuring that payments are made to the correct entities. A mortgage servicer could be a mortgage banker, a third-party firm specializing in servicing, or sometimes, even the original lender.
Examples
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Residential Loan Portfolio Servicing: A mortgage banker services a portfolio of 1,000 residential loans. For its services, the company charges an annual fee of ⅜ of 1% of the outstanding loan balance, in addition to collecting late fees on delinquent loans.
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Outsourced Servicing: A financial institution holding various mortgage loans hires a third-party mortgage servicing company. This firm manages payments, tax filings, and insurance payments ensuring proper execution of administrative tasks.
Frequently Asked Questions (FAQs)
1. What does a mortgage servicer do?
A mortgage servicer collects monthly mortgage payments from borrowers, disburses these payments to investors, manages escrow accounts for taxes and insurance, handles customer service issues, processes loan modifications, and may perform collections for delinquent loans.
2. How is the mortgage servicer paid?
Mortgage servicers are typically paid through servicing fees, which are usually a fixed percentage of the remaining loan balance, and additional fees collected for late payments and specific administrative tasks.
3. Can I choose my mortgage servicer?
No, you generally cannot choose your mortgage servicer. The lender may choose to sell the loan servicing rights to another company, which will then handle the servicing of the mortgage.
4. What happens if I miss a payment?
If you miss a mortgage payment, your mortgage servicer will likely charge a late fee. Continued missed payments could lead to default, impacting your credit score, and possibly resulting in foreclosure.
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Mortgage Banker: A company or individual that originates, sells, and services mortgage loans.
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Mortgage Correspondent: A financial institution or individual that originates and sells mortgage loans to mortgage bankers or other institutions but does not service the loans.
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Special Servicing: The servicing of loans that have higher default risks and require intensive management, often involving workout options or foreclosures.
Online Resources
References
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Mortgage Bankers Association. (n.d.). “Roles and Responsibilities of Mortgage Servicers.” Retrieved from MBA.
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Consumer Financial Protection Bureau. (2021). “What you need to know about mortgage servicing and loan modifications.”
Suggested Books for Further Study
- Fox, T. (2015). “The Mortgage Encyclopedia: The Authoritative Guide to Mortgage Programs, Practices, Prices and Pitfalls, Second Edition.”
- Harris, B. (2013). “Mortgage Servicing 101: Key Elements in Understanding the Mortgage Loan Servicing Industry.”
Real Estate Basics: Mortgage Servicing Fundamentals Quiz
### What is the primary role of a mortgage servicer?
- [ ] Selling homes
- [x] Collecting mortgage payments and managing escrow accounts
- [ ] Appraising properties
- [ ] Issuing insurance policies
> **Explanation:** A mortgage servicer's primary role is collecting mortgage payments and managing escrow accounts for taxes and insurance payments.
### How are mortgage servicers usually compensated?
- [x] Through servicing fees and late payment fees
- [ ] By the government
- [ ] From charitable donations
- [ ] By borrowing funds
> **Explanation:** Mortgage servicers are typically compensated through servicing fees, which are a percentage of the remaining loan balance, and fees collected from late payments.
### Can homeowners choose their mortgage servicer?
- [ ] Yes
- [x] No
- [ ] Only during the first year
- [ ] After five years
> **Explanation:** Homeowners generally cannot choose their mortgage servicer. The servicing rights can be sold to another company.
### If you miss a mortgage payment, what might your servicer charge you?
- [ ] A tax lien
- [ ] An additional interest rate
- [x] A late fee
- [ ] A utility surcharge
> **Explanation:** If a mortgage payment is missed, the servicer will likely charge a late fee.
### What happens to the taxes and insurance portions of a mortgage payment collected by the servicer?
- [ ] The servicer uses it for administrative costs.
- [ ] It acts as additional income for the servicer.
- [x] The servicer pays it to the tax authorities and insurance companies.
- [ ] They remain unused.
> **Explanation:** The taxes and insurance portions collected by the servicer are paid to tax authorities and insurance companies.
### Who manages the risk of defaults in mortgage servicing?
- [x] The special servicer
- [ ] The mortgage broker
- [ ] The home appraiser
- [ ] The real estate agent
> **Explanation:** A special servicer focuses on managing the risk of defaults and handles intensive loan management.
### Why might a lender sell servicing rights to another company?
- [ ] The loan has gone into foreclosure.
- [ ] The property needs to be inspected.
- [x] For operational or financial reasons.
- [ ] To avoid paying taxes.
> **Explanation:** Lenders might sell servicing rights for operational or financial reasons to streamline their business or obtain liquidity.
### What happens when a servicer is responsible for a large portfolio?
- [ ] Each borrower receives personalized attention daily.
- [x] The servicer manages thousands of loans using automated systems.
- [ ] They issue new mortgage contracts to each borrower promptly.
- [ ] Interest rates on the loans are adjusted monthly.
> **Explanation:** Servicers manage large portfolios using automated systems to efficiently handle thousands of loans.
### Do mortgage servicers handle property sales?
- [ ] Yes
- [ ] Only if requested by the borrower
- [x] No
- [ ] Only during foreclosure
> **Explanation:** Mortgage servicers do not handle property sales. Their primary role is to manage loan payments and escrow accounts.
### What might a special servicer do with a high-risk loan?
- [ ] Ignore the risk until it defaults.
- [x] Implement loan modifications or foreclosure processes.
- [ ] Sell the property instantly.
- [ ] Increase the interest rate.
> **Explanation:** A special servicer may handle high-risk loans by implementing loan modifications or foreclosure processes.
