The Expert Blog
Jason D Koontz, CRC Opinions for All
A mortgage loan servicer manages mortgage loans on behalf of the owner (investor) of the loan. The loan servicer’s primary responsibility is to collect payments on the mortgage. Still, these institutions can be involved in other matters such as managing an escrow account (insurance and real estate taxes), handling payoff requests, loan modifications, and debt collection. A mortgage loan servicer can be a bank, a credit union, or a company specializing in loan servicing. The most common functions of a mortgage loan servicer include:
● Collecting monthly payments on a mortgage
● Ensuring compliance with federal and local mortgage regulation
● Generating and distributing loan statements
● Managing escrow accounts (homeowners’ insurance and real estate taxes)
● Offering general customer service to borrowers
● Working with borrowers to minimize past dues and loan losses.
It is important to distinguish between a mortgage loan servicer and a mortgage lender. A mortgage servicer manages loans after they have been originated, while a mortgage lender is a financial institution that originates the loans. The servicer is effectively an intermediary that operates in the space between the debtor and creditor to manage the loan relationship.
Management of Mortgage Loans
I often see borrower confusion in two areas: force-placed insurance and transfer of servicing.
Forced Placed Insurance
Although mortgage loan servicers are heavily involved in managing a mortgage, the property owner still has many responsibilities. One of these obligations is to carry good homeowner’s insurance coverage. If a servicer learns that a homeowner is not carrying insurance in an amount satisfactory to the loan requirements, they will promptly notify the homeowner. If a homeowner does not take action in a timely manner to comply with the insurance requirement, a loan servicer has the authority to impose forced place insurance on a property and pass the premium on to the borrower. This typically will happen after they've provided notification and at least forty-five days have passed. These policies are generally much more expensive than those typically offered by insurance companies directly to homeowners. If forced-placed insurance is instated, it is generally in the property owner’s interest to seek alternative coverage as soon as possible and communicate the change with the loan servicer.
Servicers also play a role in different types of mortgage loans. For example, in an adjustable-rate mortgage, the loan servicer will provide notification of any changes to the interest rate.
There are several regulatory requirements for investors when transferring servicing privileges. In many cases, the rights to the mortgage services are transferred after a loan is funded, which can confuse borrowers. When a mortgage is moved from a lender to a servicer (or another servicer), they must notify the borrower. This notice must be given within 15 days of the loan being transferred and must indicate when the new service will begin accepting monthly payments. The previous servicer must also tell the day that they will no longer receive payments. This requirement protects the borrower by providing the transfer documentation and indicating where to submit payments.
A loan’s terms and conditions will not change when it is transferred. Nonetheless, it's important for borrowers to thoroughly examine statements following a transfer to ensure that there are no errors. Despite receiving these required documents, many individuals miss crucial details regarding their loan transfers. In addition to reviewing these documents, mortgage borrowers should check the following:
● Any escrow account payments that were due have been made, and the remaining balance is accurate
● The balance of your principal is accurate and correct
● The most recent payments were accurately applied
Regardless of one’s experience, the mortgage loan industry regulations can be challenging to understand at times. Mortgage loan servicers are vital intermediaries between a property owner and the investor who owns the mortgage. In addition to managing the standard day-to-day calls for payment information and loan payoffs, they have many other essential duties. This includes managing escrow accounts, implementing forced-placed insurance, notifying property owners of changes in an adjustable interest rate, and debt collection.
Victims of mortgage loan servicing abuses may seek redress through the courts. These cases often utilize an expert witness with knowledge of mortgage loan servicing standards. A mortgage loan servicing expert witness can be retained to conduct an investigation and offer opinions on whether the alleged conduct was consistent with industry guidelines.
Will Skidmore, Research Analyst with JD Koontz, LLC, provided significant assistance in writing this blog post.
Jason D Koontz
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