This ARTICLE Is About The Difference Between Mortgage Lender Versus Servicer
What are the major Difference Between Mortgage Lender Versus Servicer? We will discuss the various types of lenders in this article. The Difference Between Mortgage Lender Versus Servicer is the lender will initially fund the home loan. The lender will use their own funds from their warehouse line of credit to fund the mortgage loan. After the loan funds, the lender will sell the mortgage to the secondary mortgage market. The secondary mortgage market will pay the lender. The lender will then pay the balance of their warehouse line of credit. With freeing up the warehouse line of credit, the lender can repeat the process and originate and fund more loans. Once the loan is sold to the secondary mortgage market, the investor who purchased the loan will hire a mortgage servicer.
The mortgage servicer is responsible to collect the monthly principal, interest, and escrow payments from the borrower. The servicer pays the investor once they collect the monthly mortgage payments from the borrower. It is the servicer’s role to pay property taxes and homeowners insurance to the government agency and insurance company. For the service the mortgage servicer provides, they get a percentage of the loan amount they manage.
In this article, we will discuss and cover the Difference Between Mortgage Lender Versus Servicer.
Difference Between Mortgage Lender Versus Servicer With Their Roles And Responsibilities
When a homebuyer needs to get qualified for a mortgage, they go to a mortgage company. There are various types of mortgage companies. Borrowers can go to banks, credit unions, a mortgage broker, or a mortgage banker. Most borrowers think once they close the home loan, the mortgage company that originated and funded their loan will be servicing it as well. This is often not true. If a mortgage lender is the company that originated and funded the loan with their own money, this company is called a mortgage banker. The mortgage banker will use their own funds through their warehouse line of credit and close the mortgage under their company name. However, that lender may not be the mortgage servicer. Once the loan is sold on the secondary market, the investor who buys the loan will hire a mortgage service to service the loan. The servicer will collect the monthly mortgage payment including the escrow payments and pay the investor as well as the county for property taxes and homeowners insurance company. The mortgage servicer does not originate nor fund mortgages. A mortgage broker is not a lender.
It is a third-party company that acts as an agent between the borrower and wholesale mortgage lender. Mortgage brokers have no control over funding and are salespeople. Mortgage brokers get paid through a yield spread premium by the actual lender for their services. Mortgage brokers need to be licensed in order to originate loans in the state they do business.
The Role And Function Of Mortgage Lenders
A lender’s role and function is originate and fund mortgage loans. Gustan Cho Associates falls into the category of a mortgage lender. The team at Gustan Cho Associates Mortgage Group help borrowers qualify for a home purchase and/or refinance mortgage. Gustan Cho Associates will originate, process, underwrite, and fund residential mortgages using our own money. We use our warehouse line of credit to fund the loans. Once the loans are funded, we sell the funded loans to the secondary market. We do not service the loans we fund. Once the loans are sold on the secondary mortgage bond market, the investor then hires a mortgage servicer.
The mortgage service then services the loans. They collect the monthly mortgage payments from the borrower and then pay the investor. Servicers also collect escrow payments and pay property taxes and homeowners insurance of the borrower. Gustan Cho Associates has nothing to do with servicing the loan it has funded. This holds true for all mortgage lenders. Therefore, mortgage lenders are not servicers. There are mortgage lenders that are servicers. Some lenders have their own servicing department.
Mortgage Brokers Versus Mortgage Bankers
Mortgage brokers are third party sales agents licensed to originate mortgages. Mortgage brokers do not process and underwrite nor fund loans. They are signed up with mortgage lenders. Mortgage brokers need to learn the lender’s mortgage guidelines in order for them to be able to submit their borrower’s mortgage loans. The actual lender does the underwriting of the borrower’s file. The wholesale lender of the mortgage broker issues the clear to close and funds the loan. The wholesale mortgage lender is the company that uses their own money to fund the loan and sells it to the secondary mortgage bond market. Mortgage brokers do not have any financial responsibility on the loan they originate because they do not underwrite nor fund loans. Mortgage bankers do have financial responsibilities and risks. This is because they underwrite and fund loans with their own money. If a mortgage banker makes a mistake with underwriting a loan, that loan may not be able to be sold on the secondary market. Therefore, they are stuck with the mortgage and can only sell it as a scratch and dent mortgage at a discount.
Difference Between Mortgage Lender Versus Servicer: The Role And Function Of Mortgage Servicers
In this paragraph, we will discuss and cover the role and function of mortgage servicers. All mortgage borrowers will have a mortgage servicer assigned to them for the duration of their mortgage term. Mortgage servicing companies will do the following:
- Send out monthly mortgage statements
- Process mortgage payments
- Analyze and track payments, interest, principal, escrows, and balances
- Make payments to investors of the mortgage
- Make payments for property taxes and insurance
- Make sure and track escrow shortages and/or overages
- Take calls from borrowers who have questions about their mortgage
- Take requests of mortgage loan balance payoffs
- Initiate foreclosure for borrowers who are behind on their mortgage payments
- Do workouts, forbearance, loan modification, and offer other customer service requests
- Collect and issue late payments
- Answer any concerns from borrowers
The mortgage servicer is the customer service department for borrowers who have closed their loan. The mortgage servicer acts as the borrower’s loan manager. Any questions borrowers have, they need to contact the mortgage servicer and not the mortgage company that originated and funded the loan.
Why Lenders Are Not Mortgage Servicers?
There are many tasks mortgage servicers are responsible for.
- There are lenders who also service their loans
- However, most lenders do not have the operations staffing to do both
- Servicing requires a lot of daily administrative work
- Servicing is very different than loan origination
- Many times it is not wise to take on more than you can handle
- Servicing requires a different infrastructure and team of mortgage professionals
- Servicing requires management and analytical duties
- Some lenders do not count on just one servicer
- A lender may hire multiple mortgage servicers depending on the volume
- There are times when a borrower can have different servicers throughout the term of their home loan
- It is more profitable for a mortgage institution to hire a servicing company to handle the servicing and management of their mortgages
Servicers only concentrate on what they do best. That is servicing the thousands of borrower’s mortgages.
When Does The Servicer Take Over The Closed Mortgage Loan?
Once the mortgage lender closes and funds the home loan, they normally sell it to the secondary mortgage bond market to an investor within a week of closing. Once the loan gets sold to an investor of mortgage-backed securities, the MBS investor takes over and hires a mortgage servicer. The borrower often do not know about the transfer nor does the lender and servicer need the permission of the borrower. Once the transfer from the investor to the servicer has been finalized, the borrower will get a letter stating the servicer and payment instructions. The contact information of the servicer will be included in the mail. The mortgage rate and the terms of the loan remains the same.
