Loan Servicer
A company that manages loan administration after origination, including payment collection and borrower communication.
What is Loan Servicer?
A loan servicer is a company or institution responsible for the ongoing administrative management of a loan after it has been originated and funded. Servicer duties include collecting and processing monthly payments, managing escrow accounts for property taxes and insurance, distributing principal and interest to investors who own the loan, sending billing statements, and handling borrower inquiries, delinquencies, and default proceedings. The servicer is the borrower's primary point of contact throughout the life of the loan, even though the actual loan owner may be a separate entity such as a securitization trust or government-sponsored enterprise. Loan servicers are compensated through a servicing fee—typically a small percentage of the outstanding balance—paid from the monthly payment stream. Servicers must comply with federal regulations governing loss mitigation, including timely forbearance and modification offers to struggling borrowers.
Example
A borrower takes out a mortgage from First National Bank, which sells the loan to a Fannie Mae mortgage-backed security trust the following month. The borrower's monthly payments continue to go to First National Bank as the servicer, which manages the escrow account, forwards principal and interest to the trust, and handles any future delinquency issues.
Source: Consumer Financial Protection Bureau — Loan Servicers