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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Mortgage Lender vs Mortgage Servicer
Today in this post we will learn and understand about mortgage lender vs mortgage servicer and find out some amazing differences
A bank or financial company that lends money to borrowers to purchase a home is called a mortgage lender.
A company that handles the payment processing and sends the monthly statements to the borrower is the mortgage servicer.
The loan provider, i.e. mortgage lender or bank can also be both the mortgage servicer.
The mortgage lender and the mortgage servicer have specific policies and procedures to follow and they both are regulated by the federal government.
About Mortgage Lender
The bank or credit union that most people interact with when applying for a mortgage is the mortgage lender.
The various types of mortgages, the interest rates for each product as well as how much to spend for the downpayment are all explained by the mortgage representative at the local bank to the borrower.
When applying for the loan the borrower will have to submit proof of income such as pay stubs and other financial information.
The lender reviews the borrower’s credit history which is called a credit check, where all information about the number of accounts open, amount of debt, and payment history is seen.
Things like late payment have a negative picture on the credit report and will impact the chance of approval and the interest rate charged by the lender.
After the approval, the local bank or lender will go in for the closing, where the paperwork is signed, and the mortgage is legally put on the books.
The borrower for the life of the mortgage loan will owe the amount borrowed to buy the home, plus interest to the lender.
Every month payments will go for paying down the mortgage where a portion of each payment will pay the interest owed on the loan, and another portion of the payment will go to paying the principal or original amount borrowed on the loan.
Sometimes a lender hires another company to handle all the payment processing of the borrower once the loan is booked, these companies are mortgage service companies.
About Mortgage Servicer
An outside company that helps with the processing of the loan, and also includes making sure the loan is awarded to the borrower and that the borrower applies the loan to the intended purchase is known as a mortgage servicer.
A mortgage processing includes keeping track of loan payments, sending reminder notices for missed payments, and in the event of default in the loan then filing foreclosure documents.
When the payments haven’t been paid for a length of time and are unlikely to be paid in the future then it is termed as Default.
Then the home loan goes into foreclosure if a renegotiation of the terms of the loan can’t be worked out. In the process of foreclosure, the bank takes possession of the house and resells it to recover back any losses they faced from the loan.
The mortgage lenders can also function as mortgage servicers.
When the lender is able to handle deposits, such as a bank or financing company, then his company can also service the loan.
When a lender cannot hold deposits then the mortgage servicing company can come into play. Each state in America has its own laws and regulations of how mortgage loans are serviced and what is the roles of banks and service companies.
You’ll have a new service provider if your mortgage is sold, and according to the Consumer Financial Protection Bureau or CFPB, they should notify you of their name, contact details, and address to send payments within 30 days from the date of transfer.
The Consumer Financial Protection Bureau suggests checking the top of your statement or payment coupon book for the return address of the company if you want to know whether a particular mortgage servicing company is involved in your mortgage or not.
If you don’t see the address of the bank that originally gave you the loan, then it’s likely the loan is being processed by a service company.
You can also, visit the MERS Servicer Identification System website that will be able to help you identify the service provider.
The Purpose of Mortgage Servicers
Some banks keep the loans that they originate, while others sell the mortgages to service companies.
These service companies handle all the payments by taking over the loan process. Why do the banks do that? when the banks sell the mortgage it allows them to initiate new loans.
Because the banks have limitations on how much they can lend, which is based on numerous factors, like how much is the bank holding in deposits.
When they are servicing existing ones the banks don’t make that much profit as when initiating a new mortgage.
Secondary mortgage market buys and sells mortgage loans —many of the loans are sold to Fannie Mae or the Federal National Mortgage Association (FNMA).
Multiple existing mortgage loans which are called mortgage-backed securities (MBS) are packaged as investments by Fannie Mae.
Based on the mortgage interest rates in the investment, individuals can invest in an MBS and earn a rate of return.
Conclusion
So now we can sum it up by saying the financial institution that loaned you the money is your mortgage lender.
And the company that sends you your mortgage statements and handles the day-to-day tasks for managing your loan is your mortgage servicer.
And a leader can also be your servicer.
