What is a Loan Servicer?
The loan servicer is responsible for processing your monthly payments, paying the taxes on the property, paying the homeowner insurance policy and processes any yearly tax documents or mortgage interest rate changes (in the case of an ARM loan). The loan servicer could be the bank or mortgage company that you received the home loan from, or it could be a third-party company that has been contracted to handle these steps.
Most large banks and mortgage companies will service the loan themselves “in-house”, and retain ownership of the loan. However, some will immediately sell the loan to investors, such as large financial institutions, who repackage the loan into Mortgage Backed Securities that trade like bonds. When that sale occurs, the buyer of the mortgage, also known as the investor, will need a company to collect the payments and process all of the monthly paperwork. That’s when they will either choose to contract a third-party loan servicer, or they will service the loan themselves.
Loan borrowers are often alarmed or upset when their loan is sold to another lender or investor, but there is nothing to be alarmed about. This frequently happens in the mortgage industry, and is a highly regulated process that ensures that the borrower is not taken advantage of. If you are a concerned borrower, you can always contact your original Loan Officer or contact the servicer directly to express your concerns. In addition, there are numerous state and federal agencies you can contact if you feel that you have been treated unfairly.