Understanding mortgage servicing

With COVID-19 fears spreading as fast as the virus itself, businesses have shut down and a record number of Americans have either lost their jobs or taken dramatic pay cuts. That's led to many American homeowners looking to see whether the CARES Act, the government-backed stimulus package, can help them navigate paying their mortgage every month.

Many news items and blog posts suggest homeowners immediately contact their lenders or mortgage servicers as soon as they feel that their personal financial hardship might make it difficult to keep up with mortgage payments. That got us thinking: Not everyone knows the difference between a mortgage lender and a mortgage servicer.

Let's break it down.

Your mortgage in two parts

For new homeowners, the mortgage process can be a little overwhelming. But in reality, even families who owned homes for many years may not really know all the in's and out's of the process or be familiar with the key players involved. They just pay their mortgage every month and don't give it much consideration. 

In the most general terms, the mortgage process can be broken down into the following two distinct functions that see to it that your loan is fully funded and properly repaid. These are:

• Mortgage Loan Origination: This is the process of applying for a loan, gathering paperwork, getting a pre-approval and getting the loan funded. This is handled by the “lender,” who is typically represented by a mortgage company's loan officer who does much of the upfront leg work. 
• Mortgage Loan Servicing: This bucket covers everything that happens after loan origination, focusing on repayment, and is managed by a mortgage servicing company.

It's important to note that if a lender is a big enough mortgage company, they might also service mortgages. However, a mortgage services company never handles loan origination.

What does a mortgage servicer do?

Most lenders finance loans temporarily and then transfer or sell them to mortgage servicers soon after closing. From there, mortgage servicers pick up the ball and manage your monthly payments for the life of the loan. In a nutshell, the mortgage servicing process includes: 

• Collecting your payments
• Dispersal of the mortgage principal and interest payments to the funding organization ( FHA, USDA, Fannie Mae, Freddie Mac, etc.) 
• Paying monthly property taxes to the state government
• Paying monthly insurance premiums to your mortgage insurer

The mortgage servicer is the key point of contact if you are looking into refinancing, restructuring or loan assistance options like forbearance. Keep that in mind if you're experiencing financial difficulties or are worried about making your monthly payments.  

Does mortgage servicing change my mortgage?

Some homeowners worry that the transfer of their loan from their lender to a mortgage servicer reflects negatively on them. Not so! The sale of a mortgage is pretty standard practice and rarely impacts single loans by themselves. Mortgages are usually transferred in bulk, thousands at a time, and have nothing to do with individual borrowers. Also, a transfer from the lender to mortgage servicer does not affect your credit rating, so there are no worries there either.

Other than sending your monthly mortgage payments to a different address, nothing else changes. Your interest rate, monthly principal, interest amounts, due dates and other loan terms and conditions all remain the same. You may notice small fee changes–they could go up or down slightly. 

Reach out

If you are a current homeowner, we've worked with your mortgage servicer to pull together information you may need during the current health emergency. Check it out and find mortgage servicer contact details here.

If you aren't a current homeowner but are thinking of buying down the road, take a look at our first-time homebuyer programs. Or contact a local loan officer to discuss what it will take to get pre-approved.