When most people think about the mortgage industry, they imagine a lender that navigates a potential buyer through the home financing process. Most buyers assume that the mortgage lender will manage their loan after the home buying process is complete, but there’s another essential party that handles the day to day management of your loan. That party is known as the “mortgage servicer.”
Let’s cover the major differences between a mortgage lender and mortgage servicer and how they each contribute to your mortgage experience.
What is a mortgage lender?
A mortgage lender is a company that originates home loans. OVM Financial falls into this category, and we specialize in assisting prospective buyers with mortgage qualification and closing each transaction smoothly. When you are ready to purchase a home, we will be your first point of contact. You apply, your financial situation is analyzed, and your loan officer determines if you’re approved or not. Upon approval, you receive an offer that includes a maximum loan amount and interest rate. If you accept, we originate the loan and give you the money needed to purchase a home. OVM provides this service by helping you get approved online from the comfort of your home and, upon approval and escrow, transfers the funds to your seller on your behalf.
After the loan is closed, the business of collecting payments requires an entirely different set of expertise and infrastructure – for that reason, entire companies exist to fill this need as the servicer.
What is a mortgage loan servicer?
A mortgage loan servicer is a company that manages the mortgage throughout the loan term. But what does a mortgage loan servicer do exactly? They generally process payments, keep track of balances and interest, make payments for tax and insurance, respond to borrower inquiries, and initiate foreclosure (when necessary).
In short, after you get the loan, the mortgage loan servicer is the party you will be paying and contacting for any needs related to your loan. They often have online payment portals, which allow you to pay via various payment methods.
Why doesn’t your lender manage your mortgage?
In most cases, lenders do not have the resources to manage the daily administrative work that comes with servicing loans. It is an entirely different function from origination that requires a separate infrastructure and team. That being the case, most originators will sell or transfer their loans to servicers that specialize in management. A specific lender may partner with a certain servicer or multiple servicers. Additionally, your loan may transfer to multiple servicers throughout your term. While some companies do provide in-house servicing, it is more common that the loan will transfer to a third party.
When your mortgage is in the hands of a mortgage service company, you have a dedicated team responsible for managing your loan. They can focus their attention on servicing the loan rather than originating, which means that their sole purpose is to make sure that all is well with the loan as you pay it off.
How does a loan transfer from the lender to the servicer?
The transfer of your loan from the originator to the servicer will take place without any action required from you. Once the transfer is complete, you will receive a notice at your mailing address on file, which tells you all you need to know, including the servicer’s name, address, and contact information, along with all of your payment details. Note that nothing about your loan term, rates, or costs will change. In most cases, when a transfer occurs, you will have a 60-day grace period on payments. Additionally, it’s a good idea to check with your homeowner’s insurance to ensure that they have the information for your new servicer.
What does the servicer do with your loan?
The servicer simply manages your loan. They make sure that you receive monthly payment statements and that you pay on time. Moreover, they assess fees and issue late payment notices (when needed), and pay your tax and insurance expenses out of the required escrow account. They will also be your resource for information if you have any concerns.
If you are still unclear about the difference between a mortgage lender and mortgage servicer, contact the OVM team today. As always, we’re here to answer any questions you have and help guide you through the process. We can explain the industry standards and how it works with OVM. And when you’re ready to get started, you can get preapproved for your next home online with our QuickStart mortgage application.
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