Mortgage Subservicers: Understanding Your Loan Servicing

A mortgage subservicer collects your mortgage payment each month. Banks often use subservicers to handle their mortgage loan servicing. You may not know that your mortgage is being handled by a subservicer, since its employees answer the phone using the bank's name, and you still make payments in the bank's name.

Servicing a Mortgage

Once a mortgage loan closes, the borrower makes monthly payments to the bank or lender that lent the borrower money. These payments are made to either a mortgage servicer -- the original lender -- or a subservicer hired by the lender to handle payments and escrow accounts.

What Does Subservicer Mean

Many banks make mortgages but do not wish to be in the business of collecting mortgage payments and other related work. Accordingly, such banks hire a company called a subservicer to perform these tasks on behalf of the bank.

Mortgage Subservicer Responsibilities

Mortgage subservicers not only collect payments from borrowers, but they also hold the escrow accounts for paying taxes and insurance. The mortgage subservicer is responsible for paying the borrowers' taxes and insurance in a timely manner.

Collections Responsibility

Mortgage subservicers are also responsible for contacting the borrower when the payment is not received. Known as "collection," the mortgage subservicer contacts the borrower as soon as a mortgage becomes delinquent. If necessary, the subservicer may foreclose on the borrower's house and perform all of the related tasks.

Regulation

Mortgage subservicers are regulated by the federal government and must make certain disclosures to borrowers. If the borrower's servicing is transferred to another subservicer, the borrower must receive a written "Notice of Transfer" 15 days prior to such transfer.