When you pay a mortgage on your home every month, it can sometimes seem like there are so many entities involved in the transaction. One entity you consistently keep hearing from is your mortgage servicer. What exactly does your mortgage servicer do?
The main functions of your mortgage servicer are:
- to process your mortgage payments,
- to respond to your questions,
- to keep track of the principal and interest you have already paid,
- to send reminders of missed payments,
- and to manage your escrow account.
- In some circumstances, your mortgage servicer may initiate foreclosure proceedings.
What can be confusing about this is that the mortgage servicer is not always the same entity that originated your loan. The mortgage lender is the bank or financial company that actually gave you the money to borrow for your home purchase. In some cases the mortgage lender is also the mortgage servicer. The reason why a separate mortgage servicer comes into play is if the mortgage lender is not set up to handle deposits. When a bank or financial center sells a mortgage to a mortgage servicer, it allows the bank or financial center to initiate new loans because they are limited in how much they can lend. A bank can also make more profit originating new loans rather than servicing existing loans.
Was Your Mortgage Transferred to a New Servicer?
When a new company buys your mortgage, you are entitled to be notified within 30 days of the effective date of transfer. You will be given the name, address and telephone number of the new owner of your loan. With the exception of terms that directly related to servicing the loan, the new mortgage servicer must honor the terms and conditions of your original mortgage agreement. If, after the transfer, you accidentally send payment to your old mortgage servicer you have a 60 day grace period in which you will not be charged a late fee for this mistake.
If your mortgage servicer changes, you should take it upon yourself to carefully examine your mortgage statements to make sure all of your previous payments were correctly recorded and to make sure that the taxes and insurance premiums were paid on time. You should also retain copies of all of the previously mentioned payments. If your mortgage servicer establishes an escrow account for your mortgage, the federal government requires the mortgage servicer to make those payments on time. Within 45 days of establishing the account, the servicer must give you a statement that clearly itemizes the estimated taxes, insurance premiums and other anticipated amounts to be paid over the next 12 months, and the expected dates and totals of those payments.
It is especially important to keep proof of your home insurance and maintain that insurance, because a mortgage servicer can impose home insurance on you if you have none. This is called force placed insurance and costs more than regular home insurance, while it provides less coverage. If your mortgage servicer mistakenly assigns you a force placed home insurance policy, or if your mortgage servicer makes a mistake regarding any other matter, you can send them a letter detailing the mistake and they have a duty to investigate it and get back to you.
Can You Choose Your Mortgage Servicer?
You do not have the power to change your mortgage servicer, that being said, you don't need to be alarmed if your mortgage gets sold. It's likely that nothing will change for you accept that you now send your monthly payments to a new institution.