Servicing a loan: What borrowers should know

Mortgage servicers are companies responsible for the logistical aspects of servicing a loan. Things like processing and tracking payments, sending payment reminders and filing foreclosure documents are some of the tasks they perform. 

How loan servicing works

Your mortgage servicer helps handle your loan, but also satisfies certain federal requirements. For example, your servicer sends a report each year describing your accounts balances, property tax payments, homeowners insurance and other pertinent account activity. 

Sometimes, your loan servicer might change financial institutions. When this happens, servicers are required to notify you within 30 days of your mortgage transfer.

Parties involved in the mortgage service industry

The mortgage loan industry involves three key players: mortgage lenders, investors and servicers. 

Mortgage Lender

The lenders, or originators, are banks or mortgage firms that give you the money when a home loan was approved for you.

Mortgage Investor

A mortgage investor is a person or organization - often a government-sponsored entity - that buys the entire mortgage from the originator. This allows the lender to sell additional mortgages.

Loan Servicer

Finally, the servicers are companies handling your loan account. In some cases, the loan owner - whether a lender or investor - can also be a servicer. However, borrowers are usually connected with a third-party company to help manage repayment.

Changing your mortgage servicer

Having a quality loan servicer can make a huge difference in your borrowing experience. An excellent company maintains accurate information, is quick to contact and offers good customer service. Their important duties include canceling mortgage insurance, assisting in avoiding foreclosure or answering general queries. 

Unfortunately, you have no control over who can buy and service your loan. The lender’s right to sell to an external company is included in the terms of service you have to agree to when signing up for the loan. 

These are only a few of the important aspects of mortgage servicing to know. However, the more you understand about the parties involved, the better borrowing experience you’ll have.