Bring Mortgage Servicing In House

Have you considered what it might take to transition from being a mortgage lender to also providing mortgage servicing? Many financial institutions have counted themselves out before they’ve even begun because many times, the costs of a platform have seemed too high a barrier for small to midsize companies to enter. 

What Mortgage Lenders Do:

The mortgage lender is the financial institution lending the borrower money for a refinance of an existing home or the purchase of their new home. The mortgage lender is the originator – and they work with the borrower through the process of building the loan. From taking the application, pricing the interest rate, collecting the documents, and underwriting the loan to ensure the borrower’s creditworthiness – the mortgage lender ensures everything stays on track for both the borrower and the financial institution. Upon completion of the underwriting, there is also closing, funding, and selling the loan to the final investor. Once the loan is closed and funded, the mortgage lender can elect to either sell the servicing of the loan or retain it in-house.

How Loan Servicing Works:

Loan servicing, or loan administration, is the next phase in the life-cycle of the mortgage loan. And while it can potentially last up to 30 years, it usually lasts around seven to ten years after the loan is originally closed. Why? Because the borrower usually will move or refinance before the loan ages a full thirty years. But during that time, the servicer provides all the administrative functions associated with servicing the loan with both the consumer and the investors who are being paid interest on a monthly basis.

Working in Collaboration:

While much of the news focuses on the origination of the loan, servicing is a highly regulated function and requires a marriage of the interests of both the borrower and the investor to ensure their highest return on investment. One of the biggest losers in servicing is default, so the servicer, outside their role in managing the administration of the loan, functions as a collections agent, work-out specialist, and even a property preservationist.

The key tasks in mortgage servicing include:

  • Boarding the loan file onto a servicing system to manage the life of the loan, which requires making sure the data and the documents sourced in origination follow the loan throughout its administration;
  • Receiving and processing the borrower’s payments either via check or ACH in a timely manner and reporting their payment history to the credit bureau; 
  • Managing the borrower’s escrow of taxes and insurance, and payment of these fees to the proper taxing agency and insurance company, whether hazard, floor, or mortgage insurance;
  • Providing the borrower with a key point of contact for answering borrower’s questions and resolving customer service issues;
  • Contacting the borrower when payments are missed or late and working with delinquent borrowers to bring their mortgage current;
  • Devising workout plans for borrowers in financial distress to provide important loss mitigation to avoid the worst outcome – foreclosure through forbearance, loan modifications, or short sales;
  • Protecting the investor’s assets through property preservation on vacant properties by sending out vendors and contractors to maintain the condition of the property;
  • And finally, maintaining detailed reporting on every communication and disbursement of funds for the review of investors and regulators. 

Mortgage loan servicing is an increasingly complicated business with a high regulatory burden. After the mortgage meltdown, it became evident that loss mitigation required a much more formal approach. And the servicing platforms, like the Mortgage Builder Loan Servicing System, rose to the occasion, offering better communication platforms and robust loss mitigation toolkits. 

Over the last few years, many servicing platforms, designed to facilitate the administration, management, and reporting of the activities of servicing have focused on companies with large pools of loans. However, Mortgage Builder provides an important role in the market, working with many of the smaller servicers or those servicing less than 5,000 loans.