Loan Servicing
Loan servicing is the ongoing administration of a mortgage after it closes — collecting monthly payments, managing escrow accounts, handling customer service, and processing payoffs. Loan servicing may be performed by the direct lender who originated your mortgage or by a separate servicing company to whom the servicing rights were sold. Understanding who services your loan matters because the servicer is your point of contact for the life of the loan.
Most direct lenders make a decision at closing: retain servicing (keeping the ongoing fee income and customer relationship) or release servicing (selling the servicing rights to a specialized servicer for an immediate cash premium). The servicing fee is typically 0.25% per year of the outstanding balance — on a $400,000 loan, that's $1,000 annually or about $83 per month that the servicer earns for administering the account. Large servicers like Mr. Cooper, PHH Mortgage, and Lakeview Loan Servicing manage hundreds of billions in loans they did not originate.
From a borrower's perspective, loan servicing transfers are common and legally protected under RESPA. When a direct lender sells servicing, it must notify you 15 days before the transfer takes effect, the new servicer must send a notice within 15 days after taking over, and your old servicer must honor payments made to them for 60 days after the transfer date. Critically, your loan terms — rate, payment amount, escrow obligations — cannot change when servicing transfers.
Some borrowers prefer direct lenders who retain servicing because it means dealing with one company throughout the loan's life. Portfolio lenders (community banks and credit unions that hold loans on their balance sheets rather than selling them) almost always retain servicing. Non-bank direct lenders who sell to the secondary market are more likely to release servicing. If long-term relationship and servicing continuity matter to you, ask your direct lender upfront about their servicing retention policy.
Key Takeaway
Loan servicing is the ongoing administration of a mortgage after it closes — collecting monthly payments, managing escrow accounts, handling customer service, and processing payoffs. Loan servicing may be performed by the direct lender who originated your mortgage or by a separate servicing company to whom the servicing rights were sold. Understanding who services your loan matters because the servicer is your point of contact for the life of the loan.
Related Terms
Frequently Asked Questions
It depends on the lender. Some direct lenders retain servicing and remain your point of contact for the life of the loan. Others sell servicing rights within 30–90 days. Ask about your specific lender's servicing retention policy before closing.
Your loan terms don't change. Under RESPA, you must receive 15 days' advance notice, and payments sent to your old servicer are protected for 60 days after the transfer. Update autopay to the new servicer address immediately after receiving the notice.
Generally no. The decision to retain or sell servicing is made by the direct lender based on their business model. If servicing retention is important to you, choose a community bank or credit union direct lender that holds loans in portfolio.
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