In the mortgage industry as in many industry there are words tossed around like school house chatter which have a clarity of meaning to insiders yet are somewhat foreign to the clients being served. Most home buyers and owners who are refinancing assume if they are getting a loan from LMNOP Mortgage that is their mortgage company for the entire time they have that loan.
Not so fast.
During the application period you will be asked to sign the “Servicing Disclosure Statement” which in essence is telling you whether or not your loan will be serviced by the lender or broker originating your loan. (Image)
What is “servicing”?
The lender who originates your loan may or may not accept and manage your payments. Smaller lenders may not have the staffing power to do so and larger lenders may like the reduced risk of having a third party company handle mortgage payments, collections and even foreclosure proceedings as required.
The servicer and the lender will enter an agreement about the payments. Generally the servicer will pay your mortgage payment on the 1st of the month to the lender. They actually will pay multiple mortgage payments at once using electronic transfer of funds. The servicer makes a small gamble that you will either pay early or pay late enough that the servicer’s late fee comes into play. The servicer will pay the lender a reduced cost for the mortgage payment and keep all of the late fee.
When the mortgage and real estate industry began to collapse the servicers were not ready to handle the huge volume of foreclosures, short sales and inexperienced negotiators which cause a huge backlog and resulted in several short sale opportunities being lost, homes being foreclosed on much later than they normally would have and loan modifications being delayed by weeks or months.
The originating lender is not required to tell you to whom they will be selling/transferring the servicing of your loan. They are required only to indicate the likelihood of your loan and/or servicing being transferred or retained.