A mortgage servicing company is a company that services the daily maintenance of a mortgage loan. In many cases, after a loan is taken out, and even if that loan is eventually sold to another bank or financial institution, the day-to-day operations is often handed over to another company. In taking this responsibility, the company gets to take a small percentage of the interest payment, perhaps 0.5%.
After a payment is received, the mortgage servicing company, or loan servicing company, credits those payments and then sends out a new statement. In some cases, the company used may change several times during the life of the loan; however, the bank may that receives the bulk of the payment may stay the same.
In the United States, if the mortgage servicing company does change, the borrower has some rights that go along with that. First, notification must be made 15 days in advance of the change. Also, the grace period is extended just in case the borrower sends a payment to the previous company. This grace period is 60 days. These provisions are detailed in U.S. federal law and cannot be amended.
In most cases, the processing of mortgages is good business. Most people make their payments each month on time, or may be slightly late from time to time. Further, with improvements in technology, the processing and maintenance of a loan is becoming increasingly automated. This is made possible by things such as electronic payments.
However, the expense for a mortgage servicing company increases dramatically once a borrower fails to pay consistently on time because the company then must pursue collections. In some cases, this is successful, but still represents an additional expense for the company. If collections are needed, the servicing company may have an agreement worked out with the mortgage holder to receive additional fees, up to 100% of the late fee, and maybe even more than that, depending on the amount of work involved.
If not successful with collections, the servicer must then work with the holder of the mortgage to determine the next steps in the process. That may include, but not be limited to, foreclosure. The servicing company could handle a foreclosure or leave that responsibility to the bank, depending on the agreement between the two entities.