Apr '22 Monthly Home Insights
==> Admittedly, this month's home insight isn't "sexy" or mind-blowing, but it is important.
Recently, a substantial number of lenders have been transferring servicing rights on their mortgages. In fact, two of my mortgages recently transferred so I know firsthand how inconvenient mortgage servicing transfers can be for homeowners.
Here is a summary of what mortgage servicing is and how their transfers affect you:
MORTGAGE SERVICING RIGHTS (MSRs) & TRANSFERS
● Mortgage servicing rights (MSRs) are the "right" to receive your monthly mortgage payments (which includes PITI & MI) and to disburse these to the proper parties:
∙ Principal & Interest (PI)- to the mortgage holder
∙ Insurance- to the insurance provider
∙ Taxes- to the county
∙ Mortgage Insurance (MI)- to the private money lender (if conventional) or government (if FHA loan)
● You know the mortgage statement you receive via email or physical mail each month?
∙ This statement comes from your mortgage servicer.
∙ Note that sometimes the mortgage servicer can be the same company as the lender who gave you the mortgage, but many times not.
● When the mortgage servicer is not the same as the lender who originally gave you the mortgage, that means at some point in time your mortgage was transferred.
WHY MORTGAGE SERVICING TRANSFERS ARE A PAIN FOR CONSUMERS
● When MSRs are transferred, many times notification to the homeowner isn't made until the last week of the month for which rights are transferred (e.g. notification is received the final month of Feb and the transfer is effective March 1).
∙ This gives the borrower little or no time to set up their automatic payment with the new mortgage servicer.
● This past month, there have been a growing number of calls I have received from clients stressed about making a late payment to the new mortgage servicer through no fault of their own. This is understandable.
● The good news is that Federal law requires that no late fees may be assessed, nor can there be any negative impacts to the borrower's credit for 60 days from the effective transfer date. Phew!
ADDITIONAL FACTS ABOUT MSRs
Why are MSRs valuable?
∙ Servicers earn revenue- Servicers earn .02%-.04% of the outstanding mortgage collected each month ($20-$40/month for each $100K of outstanding mortgage). It's not a lot, but it is profitable given that it is recurring.
∙ Servicers can invest escrowed funds- Servicers can invest money collected for insurance and taxes ("escrows") between the time they are collected from the borrower and the time disbursed to the insurance company and county.
∙ Servicers can advertise to you- You know the unwanted mail you get asking if you want to refi or buy mortgage life insurance? You can thank your loan servicer ; ).
● Because MSRs are valuable, servicers pay for the right to obtain them.
● They pay for the right to earn revenue, invest escrowed funds, and advertise.
● This is precisely why servicers hate when you pay off your mortgage, particularly if you have only had the mortgage for a short time. They lose money when this happens.
● As you know, there is a huge market for mortgage-backed securities (MBS), which is basically bundling thousands of mortgages and transferring them from one lender to another.
● What you may not know, is that bundling and transferring mortgage servicing rights (MSRs) is extremely common too.