Most mortgage loans are sold into the secondary market. Lenders rarely keep the mortgages they make, as they need to replenish their capital to make more loans. However, their loans are not serviced by many buyers in the secondary market. Servicing entails collecting monthly mortgage payments. After getting the payments, servicers break down and devote the proper quantities to principal, interest, insurance and real estate taxes.
History
Before this U.S. government’s development of this secondary economy in 1971, banks, credit unions and other lenders needed to maintain mortgage loans in their portfolios, together with private, auto and other loans. Aside from earning interest on their loans, the lenders always serviced them well. Following the development of this secondary market, Fannie Mae and Freddie Mac–the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, respectively–lenders began selling nearly all of their mortgages to create cash to make more loans.
Significance
From the 1970s and 1980s, mortgage lenders might have marketed their loans, however they nevertheless serviced them. Since most lenders were banks and credit unions, they had a strong relationship with mortgage borrowers and favored to waive –hide–the simple fact that they had sold their loans. As more loans were marketed, new businesses focused on servicing–maybe not earning –mortgage loans. Mortgage loan servicing became a distinct business as Fannie Mae and Freddie Mac purchased more loans. While they purchase the majority of mortgages at the U.S., neither business providers loans.
Function
Mortgage servicers handle all customer service beyond simply collecting monthly payments. While they don’t own the loans, mortgage servicers are the borrower port, answering questions, adjusting posting errors, collecting past-due payments and coordinating loan alterations. Servicers, however, can’t typically make final decisions concerning changes in loan terms or foreclosure problems as they don’t own the mortgages.
Considerations
Because your loan servicer is an intermediary, you should understand that any major decisions on your mortgage want the loan owner’s acceptance. Should you want to alter your loan terms–decrease the interest rate, reduce the payment, halt collection or foreclosure actions –you’ll need to deal with the loan servicer first. However, the final decision will come from the home mortgage owner only.
Expert Insight
If your original mortgage lender–your bank, credit union or mortgage company–services your mortgage, the creditor should anticipate choices from the proprietor, make sure it Fannie Mae, Freddie Mac or a investment firm. Avoid getting frustrated with servicers; they attempt to present the best customer service possible. However, they lack closing decision-making authority for major questions. They typically earn only one-quarter into three-eighths of 1 percentage for servicing your mortgage, together with remaining interest going to the proprietor of your loan.
