When you purchase a home, you’re making a long-term investment in your future – and it’s important to go in with as much knowledge and understanding as possible. As a homeowner, there are lots of concepts to understand and take into account, at every step of your journey. One key concept to understand is the difference between your mortgage lender, and your mortgage servicer.
Broadly speaking, a mortgage lender is a bank or financial institution that lends money to borrowers, so that they can purchase a home. A mortgage servicer, meanwhile, is a company that oversees the day-to-day administrative responsibilities that go along with a loan, from sending monthly statements to handling payment processing.
While your mortgage lender and loan servicer may be one and the same, this is not always the case. Oftentimes, your mortgage lender will sell the right to service your loan to a third-party mortgage servicing company. Just as frequently, your initial mortgage lender – sometimes called your loan originator – may bundle and sell your mortgage to a new loan holder, which, in turn, hires another mortgage servicer. It is quite common for mortgages to be sold, as this allows financial institutions to issue new loans and increase their profits, on the back of a historically stable investment. As a result, it is quite standard for homeowners to work with with multiple mortgage servicers over the life of their loans.
Curious about the details – and what they may mean for your mortgage loan here in Chicagoland, or around the country? Let’s explore the key differences between mortgage lenders and mortgage servicers in a little more depth:
“Your mortgage lender is the financial institution that loaned you the money.”
When beginning the process of getting a mortgage, borrowers will often work with a bank, credit union, or lending company. This financial institution will take on a number of key duties throughout the process, including educating the buyer on different types of mortgages, accounting for details such as interest rates, downpayments, and so on.
When the borrower applies for their loan, the lender will be responsible for handling financial information and application materials, including proof of income. The lending company will also generally perform a credit check. Finally, the lender will issue the loan product, and set terms, rates, and conditions to be followed.
As noted, many financial institutions hire third-party mortgage servicers, or sell loans to new investors with servicers of their own. In any case, the mortgage servicer is going to be the company that the borrower will interface with most frequently. Whereas your lender finances the loan, your servicer actually handles all of the day-to-day and month-to-month tasks that go into managing and administering the loan, which may include:
- Processing payments. The mortgage servicer is responsible for collecting and properly disbursing payments, directing principal and interest to the bank or loan holder, paying taxes to the government, and making sure other fees (such as private mortgage insurance) are paid to the correct parties.
- Managing escrow accounts. In some cases, borrowers will set up an escrow account, which is a fund they pay into each month in order to cover property taxes and homeowners insurance for their house. The servicer is responsible for handling this account.
- Tracking principal and interest paid. The servicer collects and records payments of principal and interest on behalf of the loan owner.
- Responding to borrower inquiries and managing communication about the loan. Broadly speaking, the servicer oversees all communication with the borrower, including sending billing statements, responding to account questions, and contacting borrowers who are late making payments.
- Initiating and overseeing foreclosures, and reviewing loss mitigation applications. In some cases, the loan servicer is responsible for helping borrowers overcome delinquencies, including reviewing loss mitigation strategies such as forbearance or deferral.
Do You Have Any More Questions?
Do you have any more questions or concerns about any aspect of real estate law in Chicagoland, from mortgages to foreclosures, and everything in between?
The attorneys and staff of The Gunderson Law Firm specialize in helping individuals and businesses throughout Illinois find tailored solutions to their real estate needs insightfully, promptly, and professionally. We’re here to field any additional questions or address any concerns that you may have, with specific answers tailored to your unique situation.
If you’re curious about any other aspect of real estate law in Chicagoland, including…
- Residential Real Estate
- Commercial Real Estate
- Purchases and Sales
- Mortgage Conveyancing & Advice
- Title Examinations & Disputes; Title Insurance
- Estate Planning and Asset Protection
- Condominium Law
… We’re here, and always happy to continue the discussion. Drop us a line or give us a call whenever you’re ready to learn more or set up your free initial consultation.