Loan Servicing
Candlefocus EditorWhen a loan is originated, the lender and borrower are the two main parties involved, but the loan servicer is a critical third party in the process. After a loan is approved, the servicer moves into action. Responsibilities might include collecting payments via mail, processing modifications or forbearance requests, establishing escrow accounts for taxes and insurance payments, and paying debts and fees related to the loan. The loan servicer may also monitor credit score and payment history and report this information to credit bureaus.
A loan servicer can be a financial institution, such as a bank or mortgage brokerage, or third-party companies that specialize in loan servicing. This option has become popular in recent decades, as many banks and other financial institutions have found loan servicing to be less profitable than other investments. Outsourcing loan servicing can free them up to focus on more profitable businesses. The loan servicer is compensated for its work by collecting a small percentage — possibly several hundredths of a percentage — from each loan payment.
It is important to verify the loan servicer if you are taking out a loan, as you are ultimately responsible for paying back the loan. The loan servicer is a critical link in the repayment process, so confirm its identity and contact information. Furthermore, it’s vital to keep all loan documents and records in a secure place and make sure no payments are missed in order to maximize the likelihood of paying off the loan without delay.