More often than not, when you commit to a lender for your home purchase, your lender stays with you only until your loan funds. After that point, a loan is usually sold to an investor and/or a loan servicer who will run the day-to-day upkeep of your account.
The sale of your mortgage can happen repeatedly over time. Note that a sale doesn’t affect your loan itself or the amount of your payments, but it does affect where you send your payments and the options you have for making your payments.
To understand what loan servicing means for you, let’s take a step back to go over the parties involved in your mortgage.
Parties in the life of a mortgage
The originator (or broker) is your main point of contact throughout the loan application process. Their job is to find you the best interest rate and loan program, take your application, and help collect documents from you. They may also have a sidekick (AKA a loan processor) to help with some of these things.
The lender ultimately funds your loan. This is who will be listed on your final closing documents. A lender is usually a bank or a mortgage company, and may or may not be the same company as the originator.
An investor may purchase your loan to reap the benefits of your interest payments as income. For most conventional loans, this is a government-sponsored entity such as Freddie Mac and Fannie Mae. While the investor owns the loan in the background, they typically don’t manage the account—that’s done by a servicer.
The servicer collects your payment every month and is essentially the customer service provider for your loan. In addition to collecting monthly payments, the servicer is responsible for making sure your property taxes and insurance are paid from your escrow account and helping out if you find yourself falling behind on payments. Like the lender, the servicer is typically a bank or mortgage company.
A mortgage loan changing hands
Now that we know who’s who in the mortgage game, let’s look at how those roles play out in the life of a loan. We’ve outlined a common scenario here. The life of your loan may be slightly different.
1 – Your originator and lender work hand-in-hand securing the loan for you.
2 – The lender fronts the cash that you are borrowing.
3 – Within about 1-2 months after you close, the lender sells your loan to an investor. The investor is now who you owe money to.
4 – The investor isn’t in the business of managing accounts, so they sell servicing rights to a servicer.
5 – The servicer manages your account and you make payments to them. They take a small percentage of your interest as payment.
Servicing rights can be bought and sold multiple times, so a loan may change hands between different companies. These changes can make it confusing to track who your “customer service” company is. People often are surprised when they find out that their payment is now due to a different company.
Both your new servicer and your old one are required to give you notice when a loan transfer is happening, including all the relevant details, dates, and contact information. However, it is your duty to ensure you switch your payments moving forward to the new servicer.
If you do get confused when a change happens, don’t worry too much. The Federal Trade Commission requires a 60-day grace period after a transfer, during which you cannot be charged a late fee if you accidentally send your mortgage payment to your old servicer.
Not all lenders sell loans; some choose to service their customers’ loans themselves. This practice gives you as the borrower the most convenient experience. If it’s important to you to avoid the confusion of your servicer changing, you can prioritize choosing a lender who holds onto their loans.
To find out if a lender will hold onto your loan when you’re shopping for a mortgage, look at page 3 of your Loan Estimate under the Other Considerations section, where they’ll indicate their intention.
Loan servicing is an often-overlooked piece of the mortgage puzzle. Now that you’re aware of the role the servicer plays, you know what to expect if your loan changes hands. Remember, even if your servicer changes, the servicer is there to help you and you can contact them with questions at any point.
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