What’s the difference between a mortgage lender and a mortgage servicer? Most borrowers use the term “mortgage lender” to cover all parties involved in their home loan, but often, the actual lender doesn’t handle every part of the process, and your lender may hand your loan over to a mortgage servicer after closing.
Mortgage lender vs. servicer
Mortgage lenders are financial institutions or groups of investors that provide money borrowers use to buy or refinance homes, while mortgage servicers take care of the day-to-day administration of the loan until the borrower pays it off.
Some lenders do service their own loans; however, many aren’t large enough to deal with loan servicing profitably. These lenders often hand that task off to a loan servicing company.
What do mortgage lenders do?
Mortgage lenders handle the origination and funding of the loan. The origination process includes:
- Helping borrowers choose a home loan
- Taking the mortgage application
- Processing the loan
- Underwriting the loan
- Drawing up loan documents
- Funding the mortgage
- Closing the loan
Once the loan closes, it will require ongoing administration, or servicing, until it’s paid off, so many lenders transfer mortgages to loan servicing companies. Your closing documents may indicate that your loan is to be transferred, or, you may be notified after closing.
What do mortgage servicers do?
Mortgages servicers pick up where mortgage lenders leave off. Once you close on a mortgage, the servicer takes over the ongoing administration of the loan, including:
- Taking and processing payments
- Tracking your loan balance and interest paid
- Generating tax forms showing how much interest you paid each year
- Managing escrow accounts (collecting and paying property taxes and homeowners insurance)
- Initiating foreclosure if the borrower defaults
- Performing loss mitigation to prevent foreclosure, in some cases
- Processing requests to cancel mortgage insurance
Your mortgage servicer might also report your loan payment history to the credit bureaus, so if you suspect an error, contact your loan servicer, not your mortgage lender.
What happens when my loan moves to a new servicer?
Transferring the loan to a mortgage servicer does not change the terms of your mortgage — you’re simply sending your payment to a different recipient, and you might get a new account number.
When your lender transfers your loan to a mortgage servicer and you were not notified at closing, you’ll receive two letters: a “goodbye” letter from your mortgage lender and a “hello” letter from the servicing company.
In most cases, your mortgage lender must send the letter at least 15 days before the effective date of the transfer. The effective date is when the first mortgage payment is due at the new servicer’s address. The new servicer must send their letter within 15 days following the effective date of the transfer.
Occasionally, you’ll get one letter from both the new and old company. If that’s the case, you must get it at least 15 days before the transfer takes place.
Both notices will contain:
- Name and address of the new servicer
- Date the mortgage lender will stop accepting your mortgage payments
- Date the new servicer will begin accepting your mortgage payments
- Telephone numbers for the old lender and new servicer
- Statement that the transfer does not change the terms of your mortgage
- Statement explaining your rights, and what to do if you have a question or complaint about the servicing of your loan
Keep in mind that for 60 days after the transfer, you cannot be charged a late fee if you mistakenly send your mortgage payment to the lender instead of the servicer.
How to find out who your mortgage servicer is
Your loan servicer may change more than once during the life of your home loan, and you might not have access to your loan documents when you need to contact this company. If so, you should be able to find your servicer on your mortgage statement, either mailed to you or online.
You can also contact your mortgage lender and ask where your loan was transferred. Another option is the Mortgage Electronic Registration System, or MERS. If your loan is registered with MERS, you’ll be able to find it by searching your property address or name and Social Security number. You can call toll-free at 888-679-6377 or visit the MERS website.
Can you change your mortgage servicer?
The quality of your mortgage servicer can have a big impact on your borrowing experience. A great servicer keeps accurate records, is easy to contact and has helpful staff for things like canceling mortgage insurance, avoiding foreclosure and answering questions. Unfortunately, you don’t get any say in the company that services your loan. That’s part of what you agree to when you take out a mortgage.
If you have issues with your current loan servicer, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).
If you want to avoid mortgage servicing companies, you can choose to deal only with lenders that service their own loans. By law, lenders must provide a Mortgage Servicing Disclosure Statement when you apply, which tells you whether they intend to service the loan or transfer it to another lender, as well as includes information about complaint resolution.
New servicer: Now what?
Mortgage servicing is mostly automated, and it usually goes smoothly. However, it’s good to know what can go wrong and pay attention to your mortgage account after a change in servicers.
When you receive notice that your loan is being transferred, update your records. If you pay online or automatically, change your payment with your bank. If you send a check, update your address and account number. You have a 60-day grace period, so don’t worry if you already made a payment to the old account — the lender and new servicer are responsible for straightening things out.
Understand, however, that mistakes can happen. If you have property taxes and insurance in escrow, double-check your statement to make sure that they’re collected and allocated correctly. When the taxes and insurance come due, make sure that these accounts are paid.
A caveat: Don’t send payment to a new servicer until you get notice from both your new servicer and your lender. Scammers have been known to send notices and trick consumers into sending them money. If you’re in doubt, call your lender and verify that your loan has been transferred.
Featured image by Robert Kirk of Getty Images.