For most of us, the difference between a mortgage originator and a mortgage servicer is a complete mystery. In fact, ask the average person on the street, and they may not have even heard of mortgage originators and mortgage servicers. If you are one of those people, read on. I am going to lead you into the wonderful world of the secondary mortgage market and explain why you do not need to panic if you hear your mortgage has been sold.
What Is The Difference Between A Mortgage Originator And A Mortgage Servicer? The person, or business which sold you your mortgage is the mortgage originator. For most people, this is a bank or a broker. A mortgage servicer is the company which receives your payment, applies it against your mortgage account, and carries out any other required admin on your mortgage.
On some occasions, the bank which sold you your mortgage, the originator, then becomes the servicer. In this case, all of your interactions will be with the same bank.
It is just as likely that, as soon as your home purchase is complete, the lender will farm out the administration of your mortgage or sell your mortgage to another company, and that new company will become the servicer.
Let me explain.
The Role Of The Mortgage Originator
The mortgage originator may be a mortgage broker or the lender themselves. Whoever you work with to find your mortgage, that person or organization is your mortgage originator.
A mortgage originator will:
- Review your financial situation and recommend an appropriate mortgage.
- Receive your mortgage application
- Perform credit checks and confirms income, savings, and assets, etc.
- Carry out the underwriting process
If you are working directly with a lender, they will release the funds for your home purchase at closing. If you are working with a broker, they pass your application to a lender just before closing.
The Role Of The Mortgage Servicer
The mortgage servicer receives your payment and distributes the money in the following way:
- The principal and the interest go to the owner of the loan. This may be the bank with which you signed your mortgage agreement or the new owner of your mortgage.
- Any applicable taxes are sent to the government.
- If your homeowner’s insurance is included in your mortgage, the premiums will be paid to the insurer.
- For those who have had to purchase Private Mortgage Insurance (PMI), premiums will be paid to the insurers until such time you can remove your Private Mortgage Insurance.
- Any other payments which are integrated into your monthly mortgage amount will also be distributed.
A mortgage servicer is also responsible for:
- Providing you with your annual mortgage statement.
- Advising and assisting you if you should run into problems making your payments.
How Can A Mortgage Be Sold?
Many people are confused when they hear that a lender can sell their mortgage to someone else. After all, a mortgage is a loan from the lender to you, so how can that be sold?
Well, it’s like this.
To a borrower, a mortgage is a very personal thing, but to a lender, a mortgage is viewed as an asset that is worth money. In the same way that other financial assets, such as stocks and bonds, can be bought and sold, so to can mortgages.
Here’s how it works.
- A lender agrees to loan you the money to buy your home. To you, this loan is a one-to-one transaction between you and the lender. To the lender, this is the “sale” of a mortgage.
- The lender makes money when selling you your mortgage, by charging you loan origination and other fees.
- When your home sale has closed, your mortgage is considered a financial asset because whoever “owns” your mortgage will make money through the interest portion of the payments you make. Now one of three things will happen:
- The lender will keep your mortgage and carry out the day-to-day administration itself.
- The lender will keep your mortgage and have another company do the servicing – which is the day-to-day administration. This is the mortgage servicer.
- Your lender will sell your mortgage to someone else. The buyer will usually use a mortgage servicer to carry out the administration of your mortgage.
- You will continue to make your payments in the same way, and none of the terms and conditions of your mortgage will change in any way.
How Do I Know If My Mortgage Originator Has Sold My Loan?
If there are any changes to how your mortgage is handled, you must be notified in writing. This includes not only your mortgage being sold but any change of mortgage servicer. Both the buyer and the seller of your mortgage must inform you, in writing, within 30 days of the transfer of ownership.
How Do I Know Who My Mortgage Servicer Is?
Again, if there is any change to your mortgage servicer, you must be notified in writing by both the original servicer or lender AND the new mortgage servicer. This letter must also provide you with the date from which the change takes effect and the contact details for the new mortgage servicer.
The details of your mortgage service should also be printed on your mortgage statements and any other paperwork you might receive with regard to your mortgage. If you cannot find any paperwork, or you are unclear, the best way to find out is to visit MERS.
The MERS website allows you to find out who the mortgage servicer is for any loan, as long as you have:
- 18-digit Mortgage Identification Number (MIN)
- Property address/Borrower Details
- FHA/VA/MI Certificate
Will My Loan Change If It Passes From A Mortgage Originator To A Mortgage Servicer?
When the mortgage originator sells your mortgage or passes it to an outside mortgage servicer, the terms of your loan will not change.
A mortgage servicer must maintain the same terms and conditions which you signed up for when you first take out your mortgage. The only exception to this is the detail of how they service your loan; for example, the contact telephone number might change.
Your Rights When Your Mortgage Is Transferred
It is likely that your loan will be bundled with many others when it is passed from your mortgage originator to your mortgage servicer, or between mortgage servicers. We all know that when large exchanges take place, there is plenty of potential for mistakes to be made.
But Guess What?
When your mortgage is transferred to another organization, there will be a 60-day grace period. During this 60-day grace period, you cannot be charged late fees if a mistake is made and your mortgage payment goes to the previous servicer or lender.
What Do I Do If I Have A Problem With My Mortgage Servicer?
If you have an issue with your mortgage servicer, you should contact the servicer as soon as possible. When you telephone first it may be possible for the matter to be dealt with there and then. However, in most cases, you will have to explain your concerns and wait for somebody to look into it and get back to you. If this is the case, make sure you also submit your issue in writing straight away.
The same goes for any situation where you have a problem but do not wish to speak with somebody on the telephone first. Always submit the matter in writing as soon as it arises.
It is also advisable to use registered mail whenever you contact your mortgage servicer in these situations. By doing so, you will have proof of posting and proof of delivery.
A mortgage servicer is required, by federal law, to respond to any of your complaints, and correct any mistakes with a 60 business day period.
The person or organization with whom you apply for your mortgage is your mortgage originator. This may be a mortgage broker, a bank, a credit union, or any other type of lender.
Once your mortgage is “up and running” the mortgage originator may keep your mortgage and carry out all of the administration in-house. If this is the case, they are also your mortgage servicer.
If the lender passes the day-to-day administration of your mortgage to another company, this company will become your mortgage servicer. Your lender will inform you of the process, and your contact from this point on will be direct with the mortgage servicer.
Finally, the lender may sell your mortgage. In this case, you will, once again, be informed of the change and told who to contact should any issues arise.
No matter what route your mortgage travels, the company who carries out the day-to-day administration of your loan is your mortgage servicer.
For some excellent information about FHA loan requirements, check out these articles from Eric Jeanette
Eric covers the topic of FHA Loan Requirements in great detail. A must read if you are going to apply for a FHA Loan.
This FHA Closing Costs article is an easy read that is straight to the point. He covers all of the items you will see at closing.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.