What does a mortgage servicer do, and what happens when I get a new one?
The mortgage servicer is the company that collects your monthly payments. That company is not necessarily the lender that made the loan.
When the servicer receives your payment, it distributes the money:
- Principal and interest go to the bank or the investor that owns the loan.
- Taxes go to the government.
- Homeowners insurance premiums go to the insurer.
- Mortgage insurance premiums go to the mortgage insurer.
- Condo or homeowners association dues go to the association.
- Any other fees are disbursed to wherever they're supposed to go.
Other duties of the servicer
Besides collecting payments and distributing the money, the servicer:
- Sends you an annual mortgage statement that details which portions of your mortgage payments were applied to principal, interest, taxes and insurance, and any adjustments in payments to cover taxes and insurance in the coming year.
- Counsels and helps you to overcome delinquencies if you miss loan payments. For instance, a forbearance, or deferral of principal and interest payments, may be extended to help you out of financial difficulties. If the loan becomes seriously in default, foreclosure might be necessary to protect the investor's interest in the property and salvage the borrower's equity, if any.
When there's a change of servicers
At closing, your lender must inform you of any plans to turn over the rights to administer your loan to a mortgage servicer, as often happens when a mortgage is sold. The new servicer could be another lender, a bank, an investor or a third-party processing company that specializes in servicing mortgages. Over the term of your loan, you may have several mortgage servicers.
Rules of servicer changes
- You must be notified in writing of the change by your original servicer and the new one, noting the date of transfer and contact information of the new servicer.
- The new servicer must honor the terms and conditions of your original mortgage agreement, with the exception of those directly related to servicing the loan.
- You must be notified of any changes to terms of your homeowners insurance.
- During the transfer, you have a 60-day grace period during which you cannot be charged a late fee if you mistakenly send a mortgage payment to your old servicer.
- You may ask any questions or voice any disputes you have with the new servicer in writing and continue to make payments while you settle the dispute.
- Federal law requires the servicer to investigate your disputes and make any corrections within 60 business days.
Be careful if the servicer is changed
After your mortgage servicer has changed, carefully examine your mortgage statements, making sure all payments have been recorded and taxes and insurance premiums have been paid on time. Retain copies of letters, canceled checks and other paperwork relating to your mortgage and payments in case you need to document any dispute.