Perhaps one of the most confusing aspects of getting a mortgage is knowing who you’re actually paying once you’ve financed something. To that end, when your first mortgage payment is due.
While Bank What gives?
Well, this highlights the difference between a mortgage lender and a mortgage servicer.
The former funds your loan and the latter collects payments every month thereafter until the loan is paid off.
Sometimes it’s the same company, sometimes it’s not, assuming your loan is sold after closing.
Mortgage lender versus mortgage servicer
- The bank or mortgage lender processes and finances the home loan
- Once closed, it may be sold to a loan servicer or held in a portfolio
- The job of the loan servicer is to collect your monthly mortgage payments
- And manage escrow accounts if your home loan is foreclosed
As stated, a mortgage loan servicer, also known as a loan servicer, is a company that collects your monthly mortgage payments with just the loan money.
Each month you will send a payment to this company, which can last for 30 years depending on how long you hold on to your loan.
They will also manage your escrow account if your home loan is foreclosed, and collect a portion of your property taxes and homeowners insurance each month, before making those payments for you when they are due.
So, there’s a really good chance that you’ll be dealing with your loan servicer a lot more than your mortgage lender, who has probably only been in the picture for a month or so while you’re originating your loan.
As you can see, many mortgage lenders focus on originating loans rather than servicing. This means they finance the loans, sell them quickly for a profit, then launder and repeat them.
The same goes for mortgage brokers, who finance your loan on behalf of the wholesale mortgage lender, and who may also sell the loan to a different servicing company shortly after it closes.
Some lenders are also loan servicers
Complicating all of this is the fact that your mortgage lender can also be your loan servicer because some major banks and mortgage companies can take advantage of it.
So it is possible that Bank X will also be your loan servicer once the loan is funded. In this case, you will be dealing with the same company from origination until the loan is repaid, many years later.
As a rule, non-bank lenders usually sell their mortgages, while depository banks often hold them. This is due to the underlying liquidity, as holding large loans can be expensive.
One thing mortgage companies have discovered in recent years is that keeping in touch with their previous clients is a great way to generate repeat business. Or sell other services.
If they sell all of their home loans to other companies, they could lose out if mortgage rates decline and those customers are ready to refinance their mortgage.
There are also mortgage subservicers, third-party companies that perform loan servicing tasks on behalf of the lender, rather than handling these things in-house.
Anyway, without getting too complicated here, it’s important to note this distinction between lender and service provider so you know who you’re dealing with.
And to ensure your monthly mortgage payments are sent to the right place!
What do loan providers do?
- Collect your monthly mortgage payments
- Manage escrow accounts (property taxes and homeowners insurance)
- Providing customer service if borrowers have any questions
- Create loan repayment data
- Implement loss mitigation (loan defaults, loan modifications, foreclosures, credit reporting)
- Ensure compliance with federal, state and local regulations
The list above should give you a better idea of what loan servicers do, and why banks and lenders may choose to outsource these tasks.
It’s fundamentally a completely different business than mortgage lending, and many lenders are ill-equipped to handle it.
Perhaps the simplest way to look at it is that loans are financed by lenders, and loans are managed by loan servicers.
If you have any questions about your home loan after it closes, it’s generally best to contact your loan servicer rather than your mortgage broker or lender.
They should be able to answer any questions you have, whether it’s knowing where to send payments, how to make extra payments or biweekly mortgage payments, loan amortization questions, etc.
Additionally, if you have payment problems in the future, your loan servicer should be the one to contact you to discuss options.
Remember, the lender is usually only there to help process and close your loan, and then hands the reins over to a servicer from there.
Why are mortgages sold?
In short, it’s about money. Providing hundreds of millions of dollars in loans can get expensive. And if you are not a large bank with a lot of assets, you will run out of liquidity very quickly.
This means focusing on the loan origination side of the business, selling the mortgages to another company or investor to free up capital.
This process is known as “origination for distribution,” with the loans not being kept on the books of the lenders themselves.
Instead, the loans are quickly sold to investors and/or bundled into mortgage-backed securities (MBS) after a month or two of financing.
This allows the lender to continue originating more loans, without worrying about holding millions in mortgages.
It also means they can focus on originating loans rather than servicing loans, which is a completely different business.
A company may be good at actual mortgage lending, but it’s not well-equipped to handle servicing loans over long periods of time.
What happens when my home loan is sold?
As previously mentioned, it is very common for mortgages to be sold shortly after the loan is originated. Obviously this can be aggravating, and also confusing. Who do you pay for!?
The same thing can happen periodically throughout the life of your loan, and possibly years later.
So your loan may be sold immediately after it is funded, and then resold five years later to another servicer.
The ownership of the loan can change hands several times during the life of the loan, depending on how long you hold it.
The good news is that both the old and new loan servicers must notify you when servicing rights are transferred to your loan.
The old servicer must give notice at least 15 days before transferring your loan servicing rights to the new servicer.
The new servicer must also send notice within 15 days after transferring servicing rights for your loan.
Sometimes these notices can be combined if your loan is sold immediately after it is originated, with the original lender directing you to the new servicer.
But they must clarify important details including the date when the old service provider will stop accepting payments, and when the new service provider will start accepting payments.
You must include the name and contact information of the new servicing company, as well as the specific date that the right to service your loan transfers to the new servicer
Mortgage servicing transfers
- Many home loans are transferred to loan servicing companies shortly after financing
- You should receive a letter within 15 days of transferring your loan
- Contact information for the new company should be prominently displayed
- It will also include the date that your old provider will no longer accept payments
- The date the new server will start accepting monthly payments
One of the most important things you should do after your mortgage money is to note who your loan servicer is.
Unfortunately, mortgage servicing rights are often transferred shortly after your loan funds are transferred, which can make knowing who to pay confusing.
Add in all the unwanted mail you might receive as a new homeowner (such as Mortgage Protection Insurance) and it can get really confusing.
The good news is that lenders and loan service providers must adhere to certain rules regarding the transfer of servicing rights.
After you get your mortgage funds, look for a letter in the mail from the entity that closed your loan regarding the servicing transfer. You may also receive a letter from your new loan servicer as well.
It must clearly state who will process your mortgage payments from now on, and must be sent 15 days before you transfer your loan servicing rights to the new servicer.
The letter should include all the relevant contact information you will need to ensure payments are sent to the right company in a timely manner.
Note when they will start accepting payments, and when the old company will stop accepting payments.
In my opinion, it doesn’t hurt to just contact the company and make sure everyone is on the same page before sending your payment, just to avoid chaos.
If you make a payment error, there are some protections in place if this happens within 60 days of the transfer of service, according to CFPB.
During this time, the new loan servicer cannot charge you a late fee or mark your payment as late if your payment was sent to the old servicer by its due date or within the grace period.
Can I choose my loan service?
The answer is a bit of yes and no. But mostly not. Let me explain.
As mentioned earlier, home loans are often sold shortly after they are funded. However, there are some banks and lenders that hold and/or service their loans.
So, if you get your loan from one of these companies, you will also choose to service your loan as well.
One example is Navy Federal, which services all of its loans for the life of the loan. This means you’ll be dealing with them before and after your loan money, which can be a great thing.
But I don’t know if it makes sense to choose a lender just because they will keep the loan, especially if their rates are higher.
It is also possible that they will hold the loan initially, and then sell it in the future. So there’s really no guarantee what will happen in the long term.
Conversely, some mortgage companies sell all of their loans. So you will know in advance that they will not be your service.
Either way, you don’t have much control here unless you select a company that holds all servicing rights and manages the loans in-house.
I had a loan that was sold and then resold back to the original company that owned it.
Who are the best mortgage servicers in the country?
1. Rocket Mortgage
2. Syndication Mortgage
3. Chase
4. Bank of America
5. Huntington National Bank
6. New American finance
7. Mortgage of areas
8. Cross-country mortgage
9. Mortgage for citizens
10. Caliber Home Loans (owned by Newrise)
Rocket Mortgage was the top-rated mortgage servicer in 2023, according to the latest J.D. Power U.S. Mortgage Provider Satisfaction Study.
In second place was Guild Mortgage, followed by Chase, Bank of America and Huntington National Bank.
This list is about loan providers that provided the highest level of customer satisfaction, thanks to providing assistance, answering questions, solving problems, and keeping customers informed.
Both USAA and Navy Federal have higher ratings than all of the companies mentioned above, but do not meet the survey’s award criteria.
In other words, you should have a very good customer experience with these two companies as well.
Who are the largest mortgage servicers in the country?
They are listed in alphabetical order because there are no numbers available to sort them by total serving size. But they are one of the largest mortgage providers in the country.
Remember, big doesn’t necessarily mean good. It just means they are major players in the space.
All of these companies offer billions of dollars in home loans to customers, which they either originated themselves or obtained from other banks and mortgage lenders.
If you have a mortgage, one of the companies on this list will likely service your loan.
advice: Always take the time to make sure you are actually dealing with your loan servicer and not a sham entity.
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