126.96.36.199 Mortgage Servicers
The servicer acts as agent for the owner of a mortgage loan. A servicer collects the monthly payments and interacts with the homeowner on behalf of the loan owner. 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. Over the past decade, non-bank servicers, companies that are not directly connected to depository banks, have taken over a large proportion of servicing rights.
Prior to the foreclosure crisis, federal regulation of mortgage servicers was limited to a few areas covered by RESPA, primarily the handling of escrow accounts, borrowers’ qualified written requests for information, and transfer of servicer notices. Today, in the wake of the foreclosure crisis, mortgage servicers are much more highly regulated than they were before. New regulations promulgated under RESPA and TILA now apply to a much wider range of servicer activities. These include loss mitigation reviews, application of borrower payments, monthly account statements, and force-placed insurance. These federal regulations are discussed in NCLC’s Mortgage Servicing and Loan Modifications Ch. 3 (2019), updated at www.nclc.org/library. With a narrow exception for small servicers, the RESPA and TILA servicing rules apply to bank and non-bank servicers. Many state laws now regulate servicers’ conduct of foreclosures, including obligations to review for loss mitigation. See Chapter 5, infra. Finally, with increasing frequency courts have applied state law theories of contract and tort law, as well as UDAP statutes, to mortgage servicers. These state law remedies are discussed in Mortgage Servicing and Loan Modifications Ch. 5 (2019), updated at www.nclc.org/library.
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 Mortgage Servicing and Loan Modifications Ch. 2 (2019), updated at www.nclc.org/library.