Want to check how much interest you’ve paid on your home loan or need to change your payment method? Your mortgage loan servicer can help.
What Is a Mortgage Loan Servicer?
A mortgage loan servicer is a company that takes care of tasks related to administering a home loan, such as sending statements, tracking your balance and answering questions.
Your servicer could be the lender that originally issued the loan. If your lender sells the loan to another company, the company that now owns your loan could take over servicing. Or, the owner of your loan could contract with a third-party servicer.
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What Does a Mortgage Loan Servicer Do?
Your loan servicer is your point of contact for your loan and the company you call if you have questions or need assistance. The servicer is responsible for collecting money, dispensing funds and keeping records related to your loan.
Collect Payments
A mortgage loan servicer sends a monthly statement that includes your outstanding balance, the amount currently due and when you need to pay. Servicers typically allow a mortgage grace period, and you might get to choose a due date within that period. Servicers might also offer different payment arrangements to choose from, such as a monthly or biweekly schedule.
You usually have a choice of payment methods, such as mailing in a check, paying by phone, paying online or setting up automated ACH payments. If you’d like to make additional payments toward the principal loan amount, you can contact your servicer to arrange it.
Manage Impound Accounts
Servicers often manage escrow or impound accounts. With impounds, an amount to cover your property taxes and homeowners insurance is added to your monthly mortgage payment and held in an escrow account by your loan servicer. The servicer then uses the funds in the account to pay those costs directly on your behalf.
If you don’t have an escrow account through your servicer, you’re required to pay taxes and insurance separately from your monthly payment.
“Even if they’re not escrowed with us, they still need to carry a homeowners policy with the appropriate coverage amount,” says Caren Wagner, senior vice president and director of mortgage servicing at BOK Financial. “But if a borrower fails to maintain their homeowners insurance coverage, we do monitor for that. And if we identify that one has lapsed or is insufficient, we’ll notify the borrower and ensure that they’re aware of it and give them the opportunity to obtain a policy.”
If you don’t buy the necessary homeowners insurance, the servicer will generally sign you up for a policy and add the cost to your monthly payment.
Servicers are also responsible for generating tax forms. They send out an annual tax statement stating how much interest you’ve paid over the year.
Servicers report the status of accounts to the credit bureaus each month. If a payment is more than 30 days late, they’ll report the account as delinquent.
Servicers may impose late fees for payments made after the grace period or insufficient funds charges if a payment doesn’t clear.
Cancel Private Mortgage Insurance
If you have a conventional home loan, you can request cancellation of your private mortgage insurance, or PMI, once you meet the program’s guidelines or when your principal balance drops to 80% of the home’s original value. You must also be in good standing with your loan and follow other lender policies. You may be able to request a new appraisal to cancel PMI if your loan-to-value ratio is 80% or lower. When you contact your loan servicer, they will check if you are eligible for PMI cancellation and process your request.
The loan servicer must automatically cancel your PMI if when you’ve reached the midpoint of your amortization schedule (made half of your scheduled mortgage payments) or paid your balance down to 78% of the original property value.
Respond to Hardships
If something happens that prevents you from paying your mortgage, such as an illness or job loss, servicers try to come up with a solution.
“We always encourage a borrower that is experiencing a hardship or anticipates a hardship to contact their servicer,” Wagner says, “because we very much want to work with customers to help them navigate that hardship and to explore the options that are available to them.”
Depending on your loan program and whether you’re dealing with a short-term or long-term hardship, the servicer might offer options such as forbearance or loan modification. “Options that are available to them are typically determined by the investor of the loan,” Wagner says.
Pursue Foreclosure in Case of Default
If a borrower stops making payments, servicers make several attempts to contact them and set up a repayment plan or another arrangement like forbearance. If the borrower doesn’t respond or if the servicer can’t reach an agreement with them, the servicer initiates the foreclosure process.
Manage Loan Payoff
When you pay off your home loan, the servicer sends you a letter documenting that your mortgage is satisfied. It also records a lien release with the county where your property is located, and it sends you your final tax statement.
Sometimes there’s too much money paid or a remaining balance in the escrow account after a mortgage is paid off. In that case, the servicer returns the overpayment.
“Maybe the customer just sends a check upfront without verifying what is the actual payoff amount, and there’s some dollar amount still left after having the loan being paid off. So that money gets refunded to the borrower,” says Satish Vishwakarma, servicing manager at A&D Mortgage.
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Can Your Loan Servicer Change?
It’s common for the loan servicer to change at some point during a home loan’s lifetime because many lenders sell their loans to investors.
“Say I went out and bought a house and got financed by a lender. So they funded my loan,” Vishwakarma says. “But this lender is probably wanting to sell all the loans that they hold to somebody else so that they can get their money back faster. They don’t have to wait for 30 years for me as a borrower to pay off this loan.”
If a mortgage is sold, the lender might retain the servicing rights to the loan, or the new owner of the loan might delegate servicing to another company.
If your servicer changes, you’ll receive a notice in the mail, a notice of servicing transfer, from both the new and old servicer. This is sometimes called a “goodbye letter” and a “hello letter.”
“This is a requirement for all servicers to notify their new customers with this welcome letter, which tells them, ‘Hey, welcome to our company. I’m your new servicer effective this date, we’re going to be servicing your loan. This is how you contact us. This is our website address. This is how you can set up automatic payment’ and all that stuff,” Vishwakarma says.
Borrowers sometimes accidentally send a payment or two to the previous servicer. When that happens, the previous servicer forwards the payment to the new servicer.
During the first 60 days after your loan servicer changes, those kinds of mix-ups don’t count as late payments on your credit history.
“There’s no credit reporting for that period, just to account for any of that confusion that could exist within that servicing transfer,” Wagner says.
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How to Find Your Mortgage Servicer
Contact information for your loan servicer is listed in your closing documents, and it appears on each monthly statement. Or you can find this information through the Mortgage Electronic Registration Systems website.
What to Do If You Think Your Servicer Made a Mistake
If you think you’ve found an error in a monthly statement or another home loan document, you should call or submit a written request to your servicer. The servicer will open an inquiry, review your concern and respond to you with its findings.
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What Is a Mortgage Loan Servicer? originally appeared on usnews.com
