Difference Between Mortgage Lender versus Servicer

This guide covers 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.

What is the Difference Between Mortgage Lender versus 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. John Strange, a senior mortgage loan originator at Gustan Cho Associates said the following about the difference between mortgage lender versus servicer:

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 Role of the Mortgage Servicer

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 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.

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.

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. Dale Elenteny, a senior mortgage loan originator at Gustan Cho Associates said the following about the difference between mortgage lender versus servicer:

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. Angie Torres, the national director of operations for Gustan Cho Associates said the following about the difference between mortgage lender versus servicer:

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.

They can be banks, credit unions, or specialized mortgage companies. Once the loan closes, the lender can keep the mortgage on their books or sell it to investors on the secondary market. When they own the loan, they handle major decisions like rate changes, modifications, or foreclosures. Therefore, your lender is the one who sets the mortgage terms, approves or denies changes, and has the final say on your loan.

What Is a Mortgage Servicer?

The mortgage servicer is the company that takes care of the mortgage daily after you sign the closing papers. This means they send you monthly statements, collect your mortgage payments, and handle any escrow accounts, like property taxes and homeowners’ insurance. Servicers can be the same company that lent you the money, but they can also be different. If your lender sells your mortgage, the new servicer takes over those tasks. The servicer is also the point of contact for any payment questions, late fees, or escrow adjustments. Also, note that they don’t approve loans—the lender’s job.

Key Differences Between Mortgage Lender versus Servicer

Role:

• Lender: Provides the loan money at closing.
• Servicer: Manages payments and accounts afterward.

Contact:

• Lender: Call if you have questions about loan approval or changing terms.
• Servicer: Call for payment, escrow, or late fees.

Asset Ownership

• Lender: Holds the mortgage until it’s sold.
• Servicer: Never owns the loan; manages it for others.

Who to Contact?

Since the lender and servicer have different jobs, it’s important to know who to contact for what. You can contact the lender to change your payment due date or ask about your loan rate. If your payment is late and you want to know the late fee, or if you need to set up your escrow for taxes, you contact the servicer. This way, you get the right answer immediately, without wasting time on the wrong phone call.

Understanding the difference between a mortgage lender and a servicer can save you time and reduce confusion. The lender gives you the loan; the servicer keeps it running smoothly after you move in. Knowing their separate roles also helps you decide who to call for different questions—keeping your mortgage experience hassle-free. For more help on mortgages, reach out to Gustan Cho Associates.

What a Mortgage Lender Does

Your mortgage lender determines whether you can get a loan by checking your credit report, income, and savings. They then show you different loan choices, like FHA, VA, USDA, or conventional loans. The lender decides your interest rate and how long you will pay it off. After looking at everything, they either say yes to your loan or deny it. Finally, they give you the funds right at closing.

Mortgage lenders can be big banks, credit unions, brokers who work with wholesale lenders, or direct lenders like Gustan Cho Associates, which does not require extra rules beyond what the investors ask for.

What a Mortgage Servicer Does

Once your loan closes, your mortgage servicer takes over. This company collects your monthly payments, manages your escrow account, and helps you with questions or problems as long as the loan is active.

Key Responsibilities of a Mortgage Servicer

• Collects your monthly principal, interest, taxes, and insurance payments
• Manages escrow accounts for property taxes and homeowners’ insurance
• Provides monthly mortgage statements and year-end tax documents
• Assists with loan modifications, forbearance, or payment deferrals if you face hardship
• Handles customer service, including payoff requests and balance inquiries

The original mortgage lender often sells your loan to investors like Fannie Mae or Freddie Mac. Once that happens, the mortgage servicer will remain your main contact for payment and account support.

Mortgage Lender vs. Mortgage Servicer

Though both play a part in your mortgage, they do different jobs.

• Mortgage Lender: Gives you the loan, sets the terms, and funds your mortgage.
• Mortgage Servicer: This company manages the loan after closing, processes your payments, and provides ongoing account help.
• In simple terms, the lender is who you borrow money from, while the servicer is who you send payments to every month.

Why Your Mortgage Might Change Hands

After you close your home loan, you might hear that your mortgage has been sold. While your loan terms stay unchanged, you’ll start sending payments to a different company. Here’s why this happens:

• Banks want to lend money to more borrowers, so they sell loans to free up cash.
• Lenders sell their loans to agencies like Fannie Mae or Freddie Mac, which helps keep mortgage money flowing.
• Some companies are experts at servicing loans so that a lender might transfer your loan to one of them.
• When this change occurs, you’ll receive a letter or email telling you the new place to send future payments.

How It Affects You

Knowing the difference between the loan lender and the loan servicer helps you get the right answers faster:

How about getting approved, or about your credit?

Talk to your lender.

Got a question about a payment or your escrow account?

Talk to the servicer.

Do you Need a letter stating how much you owe or want to change your loan?

Again, talk to the servicer.

Thinking about refinancing or getting a new mortgage?

Go back to your lender.

Picking a Lender

Even if your mortgage ends with a servicer, choosing the right lender still matters. A strong lender will offer good rates, low closing costs, and flexible underwriting. Working with a mortgage broker like **Gustan Cho Associates** gives you access to many lenders and programs, usually without extra rules that can slow you down.

Mortgage Lender vs. Servicer: Your FAQs Answered

What’s the big difference between the mortgage lender and the mortgage servicer?

Your lender gives you the money for your home, while the servicer handles your loan daily after you close.

Will my lender and servicer ever be the same company?

Yes, sometimes they are the same, but the lender often sells the loan so a different company can manage it.

If my loan moves to a new servicer, will my mortgage change?

Nope. Your payment amount, interest rate, and loan balance stay the same. Only the company you send your payment to will change.

Who do I call if I want to refinance my mortgage?

Contact a mortgage lender or a broker, not the servicer, for refinancing.

What if I send my payment to the old servicer?

You’ll usually have a short grace period. The old servicer will pass the payment along, but it’s best to update your records immediately.

Why do lenders sell mortgages?

Selling the loan gives lenders cash to make new loans and helps them manage financial risk.

Will selling my loan change my credit score?

Nope. Your score won’t budge if you keep making on-time payments.

Can I pick who services my mortgage?

No, the lender or loan investor chooses. You won’t get a say in who handles your account.

What if I hit a rough patch and can’t keep up with my mortgage?

Call your mortgage servicer right away. They can explain options that might help, such as temporary forbearance or a loan modification that could lower your monthly payment.

Who sends the tax statement that shows how much mortgage interest I paid last year?

The mortgage servicer sends you that form, not the bank that loaned you the money.

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. Dale Elenteny, a senior mortgage loan originator at Gustan Cho Associates said the following about the difference between mortgage lender versus servicer:

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.