Mortgage Originators vs. Lenders vs. Servicers
Mortgage originators will either directly or indirectly be compensated for their work with you. This can be in the form of fees or commission from either you or the lender, but not both.
Lenders
The lender is the entity that actually funds—and thus owns—your loan. This may be a large bank, your local credit union, or another institution, such as a mortgage company. Other types of lenders could include some mortgage bankers or even someone you know. Lenders earn their income by the interest that they charge you for your loan.
Servicers
Servicers are in the business of managing your loan after it’s been finalized. This means they’re the company to which you make your mortgage payments and interact with if there are changes to or problems with the mortgage that need to be resolved. They also manage your escrow account, if you have one, and can help you find additional options if you become delinquent on your loan. Your servicer may be the same institution as your lender, though it doesn’t have to be. Servicers derive their income by taking a cut of the cash flow when you make a mortgage payment. This is generally around 0.25%.
Why Do Lenders Sell Mortgages?
As we mentioned above, lenders are the entities that finance your loan. This means that they lay out the funds you need in order to purchase your home. However, lenders only have so much money that they can lend; once they’ve spent it all, they need to recoup some in order to continue issuing new loans. On the one hand, selling your loan clears their debt and allows them to extend more on new loans. On the other hand, they may choose to sell your loan to raise funds; selling your loan guarantees immediate cash, whereas their investment in your loan can take 15 to 30 years to recoup. Mortgage investors buy loans on the secondary market. Government-sponsored entities, such as Fannie Mae and Freddie Mac, will purchase conforming mortgages—the types of mortgages that meet their standards. When a lender sells your loan, your servicer might not actually change. Although lenders are required to give you notice of the sale within 30 days, the actual loan changing hands does not necessarily affect the servicer. This is true even if your lender also acts as your servicer; they may opt to sell the mortgage and retain the right to service it. Servicers, meanwhile, may not own your mortgage. As we mentioned before, they are the consumer-facing company with whom you interact. Companies may choose to sell servicing rights because maintaining mortgage services can be both costly and time-consuming. Once a transfer occurs, you’ll start making payments and communicating with your new servicer.
What To Do When Your Mortgage Is Sold
Mortgage sales are a common occurrence; if lenders are simply selling the loan and retaining the servicing rights, you should see no difference in your day-to-day interactions with your mortgage. However, if your servicer changes, you’ll want to make sure that they’re complying with federal regulations related to your loan. This includes giving you timely information about your mortgage and correctly crediting your loan payments. Some states, such as California, require a license in order to service mortgages. You can verify these licenses on state databases in order to ensure that they are legitimate.
Alternatives To Paying Loan Servicers
Loan servicers aren’t something you’re able to select. If your lender is not also your mortgage servicer, it will choose the third party that will be handling servicing rights. If you don’t like your current loan servicer, there isn’t much you can do. It’s not possible to force your lender to choose another one. However, if you have a complaint against your loan servicer, you can contact it in an effort to have the problem resolved. Thanks to the Real Estate Settlement Procedures Act (RESPA), your loan servicer has to acknowledge your request within 20 days and try to resolve it within 60 days. If they fail to do so, you may have the right to file a civil lawsuit if the service violates RESPA. If all else fails, you can opt to refinance your loan in order to acquire a new mortgage servicer.
The Bottom Line
Lenders selling loans is a common occurrence. This is done for a variety of reasons, including seeking the ability to offer new loans. Although you’ll be notified when this happens, nothing will be different for you unless your loan servicer also changes. Loan servicers are the entities that collect your mortgage payments and manage your escrow accounts, among other duties. When your loan servicer changes, you’ll receive a 15-day notice beforehand. Afterward, you’ll start to make payments and interact with your new mortgage servicer instead.
