Finding a home and financing the purchase with a mortgage loan are only the beginning of the homeownership journey. Once the loan closes, the next step is mortgage servicing where servicers manage the borrower’s monthly mortgage payments, annual taxes and insurance premiums. The following frequently asked questions will help you better understand how mortgage servicing works and the software systems used by servicers.
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1. What is mortgage servicing?
Mortgage servicing occurs after the loan closes and funding is completed. It is the process of collecting monthly loan payments and managing the borrower’s annual taxes and insurance premiums using their escrow accounts. Some lenders service the mortgage after closing, but typically the mortgage servicing rights (MSR) are sold to another company.
As life happens, mortgage servicers also inform borrowers on what they can do to modify payments to avoid default, take out home equity loans, or trade up or downsize their homes. When necessary, mortgage servicers conduct and supervise the foreclosure process.
2. What is the difference between loan origination and mortgage servicing?
In its simplest form, loan origination is the process of obtaining a mortgage to finance a home, while mortgage servicing is the process of keeping borrowers in their homes after they close by managing monthly payments and escrow accounts for taxes and insurance.
3. What types of mortgage servicing software are available?
When selecting a mortgage servicing system, one size does not fit all. Often mortgage servicing systems are split into different categories based on the number of loans serviced by an organization. The best mortgage servicing systems are flexible enough so that small, medium, and large companies can get the right fit for their needs.
It is important that mortgage servicers work with an experienced mortgage servicing technology provider. Banks, credit unions, independent mortgage bankers, state housing authorities, and even local non-profit organizations are all subject to slightly different rules that must be followed.
Selecting a comprehensive mortgage servicing system that supports the full range of loan products and is scalable for future growth is important because this technology is a long-lived investment.
4. What is a mortgage servicing system?
A mortgage servicing system is a software platform used by loan servicing companies to help them manage a borrower’s monthly mortgage payments. It also helps servicers pay the borrower’s annual taxes and insurance premiums on time by giving servicers tools they can use to track due dates, automate processes, and manage escrow accounts. A mortgage servicing system allows servicers to manage a range of tasks including:
- Cash
- Collections
- Escrow management
- Payoffs
- Investor accounting
- Credit reporting
- Loss mitigation
- Default
- and more
Mortgage servicing systems also integrate with digital, self-service tools that allow borrowers to view their loan information anytime, anywhere. Borrowers can use calculators to explore payment scenarios and easily engage with customer service representatives online to ask questions or discuss payment modifications during financial hardships.
5. What is the implementation process for a mortgage servicing system?
A mortgage servicing system implementation includes installing software and configuring that software with the mortgage servicer’s specific business rules and processes. The mortgage servicing system can be integrated with third-party software using application programming interfaces (APIs) to assist with the management of a loan, such as:
- Insurance companies
- Local taxing authorities
- Credit bureaus
- Investors
- Other vendors
The implementation process includes training servicing staff on how the mortgage servicing system works and running multiple tests of the platform before going live.
6. How long does it take to implement a mortgage servicing system?
Depending on the size of the organization and the number of loans being managed by the servicer, implementing a mortgage servicing system can take anywhere from 6 to 18 months.
7. Who uses a mortgage servicing system?
Servicers – Use mortgage servicing software to perform several functions each day to manage a borrower’s mortgage payments, annual taxes and insurance premiums. They also use the mortgage servicing system to manage loan payment modifications to help borrowers avoid default. Depending on the size of the organization there can be several people assigned to each task, or one person who wears many hats.
Investors – Integrate with mortgage servicing systems to help them manage their risk. The mortgage servicing system allows servicers to report to investors such as banks, credit unions or government entities such as the VA, FHA, Fannie Mae, Freddie Mac, Ginnie Mae or others.
Credit bureaus – Integrate with the mortgage servicing system to capture the borrower’s payment history as part of their credit reporting process.
8. What features should a mortgage servicing system include?
A mortgage servicing system allows servicers to manage a range of tasks including:
- Cash
- Collections
- Escrow management
- Payoffs
- Investor accounting
- Credit reporting
- Loss mitigation
- Default
- and more
The best mortgage servicing systems are configurable to fit the servicer’s unique business processes and scalable to address different loan volumes.
Modern mortgage servicing systems interface with digital self-service tools that allow borrowers to view their mortgage loan information anytime, anywhere. They can also explore mortgage pay-off scenarios using calculators, request loan payment modifications to avoid default, communicate with customer service representatives and more using their phone or computer.
9. What are the benefits of a mortgage servicing system?
In today’s digital banking world, the benefits of the right mortgage servicing system are felt by both the servicer and the borrower.
- Enhance the borrower experience: The most advanced mortgage servicing systems provide the borrower with digital, self-service capabilities where they can view their mortgage loan information, explore payment scenarios and interact with customer service representatives without having to go into a branch or call them on the phone.
- Improve employee retention: Online access reduces the demands on busy customer service representatives and frees them to focus on more critical tasks.
- Increase efficiency: Mortgage servicing systems also automate tasks and streamline processes in the servicer’s daily operations to help increase efficiency, improve performance and reduce costs. Additionally, the mortgage servicing system can help servicers meet key milestones and follow processes consistently each time.
Conclusion
The right mortgage servicing system can provide significant benefits for both servicers and borrowers. With a comprehensive mortgage servicing system, servicers can streamline loan processes, improve communications with their borrowers, increase efficiency and reduce servicing costs. Borrowers have access to the latest digital tools to help them manage their mortgage payments, request payment assistance, review annual taxes and insurance premiums – all while having instant access to customer service representatives via their phone or computer.