Skip to content

Mortgage Lenders and Servicers: What’s the Difference?

Michael Agruss

Written and Reviewed by Michael Agruss

  • Managing Partner and Personal Injury Lawyer at Mike Agruss Law.
  • Over 20 years of experience in Personal Injury.
  • Over 8000+ consumer rights cases settled.
  • Graduated from the University of Illinois Chicago School of Law: Juris Doctor, 2004.

When home buyers approach a local bank or credit union for a home loan, they often think the institution will handle the mortgage entirely. This is not always true. As many homeowners learned during the implosion of the mortgage business in 2007, it’s critical to know the difference between a mortgage lender and servicer. 

The mortgage lender sometimes referred to as the originator, is where it all begins. The loan officer from the financial institution meets with the potential borrower and discusses the types of mortgages available, interest rates, and down payment. If the loan is approved based on factors such as credit rating and proof of income, the lender facilitates the loan closing. At the closing, the paperwork is finalized and becomes a legally binding agreement.

What many borrowers don’t realize is that after the closing, the lender often hires another company, known as the servicer, to handle the regular payment processing. This processing includes tasks like sending reminder notices, taking care of taxes and escrow accounts, handling insurance, and following up on late payments. In other words, the lender is the face of the loan, while the servicing company is the “back office” where all the subsequent work is done. Sometimes, the lender and servicer are two different companies.

To take this one step further, sometimes the lender sells the mortgage itself to a mortgage servicer. This allows the bank or credit union to generate more money for additional loans, continuing the cycle of mortgage creation and transfer. 

This transfer of ownership usually doesn’t have any practical implications for the borrower. The payment book or monthly notices arrive, the homeowner makes their payment on time, and all is well. It isn’t until problems like late payments and requests for short sales or foreclosures occur that the paper trail can get confusing to the borrower. After all, they dealt with a person at their bank or credit union and believe they can deal with that person when any problems come up.

According to the Consumer Financial Protection Bureau or CFPB, the new owner of the loan must notify the borrower within 30 days of the transfer of the loan from the first financial institution to the next. The practical question is this: Do homeowners pay attention to those notices when they show up in the mailbox? 

Many homeowners, busy with other matters, do not notice the change until a problem arises. And for this reason, it is important for homeowners to know who actually owns their home until it is paid off. When the borrower experiences financial problems and cannot pay the mortgage on time—or at all—the servicing company must approve a request for a short sale or file foreclosure papers for the property.

People in financial difficulties have enough to worry about without the added stress of tracking down the actual owner of their home, which they thought was their local bank or credit union where the process started. During the mortgage crisis of 2007, many homeowners were caught unawares and had to take extra steps to attempt to salvage their mortgages. For some homeowners, this confusion and delay cost them their homes. Take steps now to find out who owns your mortgage so that if something should happen, you will know who to contact right away.

Submitted Comments

No Comments submitted yet. Sharing your story will help others!

We are listening

We will respond to you at lightning speed. All of your information will be kept confidential.

Form successfully submitted!