At closing, your mortgage lender must tell you who will be servicing, or administering, your
mortgage loan. In other words, who do you send your mortgage payment to? Who do you contact
with questions about the loan?
Traditionally, the mortgage banker will service the loan for the life of the mortgage, on
behalf of the investor. However, the servicing may be handled by a third party, not the
lender who originated and approved the loan.
How the Mortgage Market Works
It may help to understand more about the mortgage market. As the Mortgage Bankers
Association of America explains:
- The process begins in the primary mortgage market where bankers use short-term
borrowings to make or originate mortgage loans to home buyers.
- These loans are then grouped together for sale in packages to outside investors, usually
large institutions.
- The proceeds of the sale are used to pay off the initial bank loan and replenish the
lending capital, so the cycle can start all over again.
- There also is a secondary mortgage market where pools of residential loans are sold and
resold after origination.
- Participants in the secondary market include thrifts, commercial banks, life insurance
companies, pension and mutual funds, and institutions such as the Federal National
Mortgage Association (Fannie Mae), the Government National Mortgage Association (Ginnie Mae)
and the Federal Home Loan Mortgage Corp. (Freddie Mac)
How Servicing Works
Your mortgage lender, or a designated third party, is charged with administering your loan.
It is important to keep good records of your dealings with the mortgage servicer because the
loan servicing also can be sold. (More on that below.)
- Servicing involves collecting and processing the monthly mortgage payment, which
includes amounts for principal and interest on the loan, plus amounts for hazard insurance
premiums and property taxes that are maintained in "escrow" accounts. The mortgage lender or
servicer has custody of the escrow until the tax and insurance payments are paid. It is the
responsibility of the lender to make these payments on time.
- At the start of each year, the mortgage lender must let borrowers know what portion of
their mortgage payments for the previous year were applied to principal, interest, taxes and
insurance. The lender lets the borrower know if any adjustments in payments are needed to
cover insurance and taxes for the next year.
- The servicer also forwards the proceeds to investors who have purchased the mortgage
loans and acts as the investors' representative if any problems arise with the loan.
- According to the Mortgage Bankers Association of America, if homeowners become
delinquent in payments, the mortgage lender is responsible to counsel and assist homeowners
in overcoming the delinquency. A "forbearance" or deferral of principal and interest
payments, may be extended to help borrowers work out their difficulties. If the loan becomes
seriously in default, foreclosure may be necessary to protect the investor's interest in the
property and salvage the borrower's equity, if any.
What If Your Mortgage Servicing is Sold
The servicing of your mortgage may be transferred or sold. Here's what should happen, and
what to watch out for:
- You must be officially notified in writing of the change by both your original
servicer and the new servicer.
- You should receive complete details: date transfer takes effect, name, address and
toll-free numbers of the new servicer.
- You must be informed if any of the terms on your homeowner's insurance will change.
- The new servicer must honor any terms or conditions of your original mortgage contract,
other than those directly related to servicing the loan.
- There is a 60-day grace period during the transfer where you cannot be charged a late
fee if you mistakenly send the mortgage payment to the old servicer.
- Put any questions or disputes you have with the new servicer in writing. Continue to
make payments while you settle the dispute. Otherwise, you might run the risk of being
considered in default
- Federal law requires the servicer to investigate and make any necessary corrections
within 60 business days.
Tips
After your mortgage servicer has changed, take an careful look at your mortgage statements.
Watch for any mistakes. Make sure taxes and insurance have been paid on time. And, of
course, keep any letters, canceled checks or other documents relating to your mortgage and
payments, so that you have the paperwork to back you up in case of any dispute.
|