What does it mean that I now have a non-bank mortgage servicer?

Understanding who actually takes care of administering your mortgage, even if it's still held by the same bank.

Question

I have a mortgage loan and just received a letter stating that Nationstar is now my servicer. I’ve never heard of them. What does this mean? Is Nationstar a bank?

Answer

No, Nationstar is not a bank. It is what’s called a “non-bank” mortgage servicer.

What Is a Mortgage Servicer?

First, let’s define the term “mortgage servicer.” A mortgage servicer handles mortgage loan accounts. Among other activities, the mortgage servicer will:

  • collect and process your monthly mortgage payment
  • manage your mortgage escrow account (if you have one)
  • assess your loan for a mortgage modification or other workout option if you fall behind in payments, and
  • oversee foreclosure proceedings when necessary.

What Is a Non-Bank Mortgage Servicer?

Sometimes, the owner of the mortgage loan (for example, the bank you took out your loan from) will service your mortgage loan. In that case, the bank is the servicer. In other cases, the mortgage loan owner might transfer the right to service your loan to a specialty mortgage servicing company, such as Nationstar.

The mortgage servicing company then manages your loan account on behalf of the mortgage loan owner, for a fee.

Non-Bank Servicers Are Servicing More and More Loans These Days

In the past, mortgage servicers were almost always banks. Now, however, banks have been transferring servicing duties to non-bank companies in record numbers.

Why are non-bank servicers handling more loans than in the past? Over the past few years, mortgage servicing rights have increasingly been transferred away from banks to non-bank servicers because these companies tend to specialize in handling delinquent and defaulted loans. Troubled loans tend to require a lot of attention because the servicer has to take on the tasks of trying to collect late payments, helping the borrower explore alternatives to foreclosure, and handling the foreclosure if a workout can’t be accomplished.

For this reason, banks sometimes deem these types of loans to be too difficult and expensive to service. So, banks tend to send portfolios of troubled loans to non-bank servicers.

Banks also sometimes transfer servicing duties to avoid certain obligations. Banks have also been known to transfer servicing duties to avoid strict new regulations relating to mortgage servicing that have been enacted in recent years. By selling the servicing rights, the banks can avoid certain mortgage servicing laws and requirements, along with the costs and efforts associated with ensuring compliance with them.

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