Loan borrowing is the process whereby a company (mortgage bank, service company, etc.) collects interest, principal, and escrow payments from the borrower. Most mortgages are supported by government or government sponsored entities (GSEs) through purchases by Fannie Mae, Freddie Mac, or Ginnie Mae (who buy loans secured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA)). Because GSE and private lending investors typically do not serve the mortgage loans they buy, banks that sell mortgages generally will retain the right to serve mortgages in accordance with the master agreement.
Payments collected by the service provider mortgage are sent to various parties; the distribution typically includes paying taxes and insurance from deposited funds, principal and interest payments to investors holding mortgage-backed securities (or other types of instruments supported by mortgage lending pools), and handing fees to mortgage guarantees, trustees and third parties others provide services. The level of service varies depending on the type of loan and terms negotiated between service providers and investors seeking their services, and may also include activities such as delinquency monitoring, training/restructuring and foreclosure implementation.
In return for this activity, service providers generally receive certain contract service fees and other additional income sources such as buoys and late fees. Mortgage servicing becomes "much more profitable during the housing boom," and some servicers target borrowers "less likely to make payments on time" to accumulate more late fees.
Video Loan servicing
Overview
Servicers are usually compensated by receiving a percentage of unpaid balance on the loans they serve. The cost rate can range from one to forty four basis points depending on the size of the loan, whether it is secured by commercial or residential real estate, and the level of service required. Such services may include (but are not limited to) statements, coercion, collection, tax reporting, and other terms.
The Company recognizes the right of service as a different asset or liability when the ownership of such rights is contractually separated from the ownership of the principal. The recognized value for service rights is based on the net present value of the expected cash flows received from the service minus the amount that would be required to compensate the service provider (this combines the expected cost of the service plus the profit margin required by market participants). The value of the service asset or liability is very sensitive to the interest rate because of the relationship between the expected interest rate and prepayment (ie, refinancing the loan). This is because when the loan is refinanced the service charge and other benefits of the service stops, making the value of this asset extremely unstable. For this reason, companies holding a large number of service rights tend to protect the value of these service rights by using interest-rate derivative instruments such as swaps and interest rate swaps.
In order for these companies to exist, they need to use the software. There are many loan borrowing software companies and they tend to focus on specific industries, such as community development finance institutions (CDFI), commercial loans, housing loans, and multi-family loans. To provide this solution, vendors work with companies and design systems around its complexity. Some of these systems can be thousands of programs and can be considered as some of the most complex software systems ever created.
Maps Loan servicing
Company involved
Wells Fargo, PNC Financial Services, Bank of America, JPMorgan Chase, Ocwen Financial Corporation, SN Servicing Corporation, and Carrington are examples of large companies involved in the loan services industry.
- GMAC
- SN Servicing Corporation
See also
- Loan origination
- Primary provider
References
Source of the article : Wikipedia
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