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1.3.3.5 Mortgage Servicers

The servicer usually serves as agent for the mortgage holder. It collects the monthly payments and interacts with the homeowner on the holder’s behalf. It may hold monies in escrow to pay the property taxes, homeowner’s insurance, or other similar expenses. Servicers are generally responsible for other account maintenance activities such as sending monthly statements, keeping track of account balances, handling interest rate adjustments on adjustable rate mortgages, collecting and reporting information to national credit bureaus, and remitting monies to the owners of the loans. The servicer also negotiates any repayment or loss mitigation plan with a defaulting homeowner or hires a foreclosure attorney if necessary. When a mortgage is assigned upon sale in the secondary market, the mortgages are generally serviced by a bank or servicing company. The servicer may be the originating lender if it retained servicing rights when it sold the loan.

Securitized loan pools may have several layers of servicers. For example, the primary servicer will collect monthly payments and interact with the homeowner; the special servicer is often responsible for nonperforming loans and real estate owned assets; and, the master servicer oversees both the primary and special servicer, ensures a smooth transition between the two servicer when a transfer is necessary and is charged overall with protecting the interest of the investors. Primary servicers and special servicers may in turn contract with tax service providers, insurance providers, foreclosure and bankruptcy attorneys, inspection services, and other similar parties to perform different functions in the loan servicing process.

For a detailed discussion of common mortgage servicing abuses, See Chapters 2, 3 and 4, infra.