After the Closing:
What About Mortgage Payments?
I recently wrote a post on Consumer complaints received about the Mortgage Industry. Many of my readers were very surprised to find that the #1 complaint was concerning Mortgage Payments and their servicing.
Because of a number of the comments received on this post, it became very clear to me that there is some confusion about the Mortgage Servicing Process, as it pertains to Mortgage Payments. And maybe I need to clarify some things a bit more on this important portion of Mortgage financing.
So below is some background that will assist you now, while reading news/articles, or while involved in your Mortgage Process in the future. I also include a link to the Mortgage Glossary on my website, to help even further.
Lender, Originator, Loan Officer, Mortgage Broker, Mortgage Banker ... All refer to the front person that typically is your point of contact to Apply for a Mortgage Loan. They also are the person that is responsible for and guides your Application through from start to finish.
Servicers, End Lenders, "The Bank" ... All refer to the entity (usually a well-known National Bank) that accepts your monthly payment and manages the Escrow payments for Real Estate Taxes, Homeowners Insurance, and Private Mortgage Insurance (if applicable). They also are called upon to report your Payment History to the 3 major Credit Bureaus (TransUnion, Experian, Equifax).
Insurers of Mortgages include: Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), FHA (Federal Housing Administration), VA (Veterans Administration), USDA-RD (US Dept. of Agriculture-Rural Development) ... None of these Government Sponsored Enterprises (referred to as GSE's) or Government Agencies actually accept Mortgage Payments. (In other words they don't "service" Mortgages.)
These GSE's and Agencies simply lay down the rules, guidelines, and regulations that Originating Loan Officers and Mortgage Lenders must adhere to when a loan is "sold" to one of the above-named entities. Over 70% of Mortgages held at a point during 2009 were eventually "sold" or placed with the Fannie Mae and Freddie Mac agencies (Source: Congressional Budget Office).
With the info and background above, here's what happens (in the majority of cases) after a Mortgage loan is Closed. I'm providing an example to help illustrate:
Let's say a Mortgage loan is granted. It's a purchase loan and its Closing Date is set for December 15th. The Home Buyer/Borrower has opted for a Fixed Rate Mortgage with a 30 year amortization. They want their Real Estate Taxes and Homeowners Insurance included in their Monthly Mortgage Payment. There's no Private Mortgage Insurance involved in the payment, as the Buyer placed 20% Down (or greater) on their purchase.
With their Closing Date being the 15th of the month, the Buyer/Borrower "pre-pays" the remainder of December's interest due (17 days, including the Closing Date). The Mortgage Lender also collects a "prorated" share of the annual Real Estate Taxes (based upon the last/most recent tax bill for that property) and Homeowners Insurance in order to establish an Escrow Account for the Buyer/Borrower, as of the Closing Date.
Using this timeline, the FIRST PAYMENT due on this loan is not until February 1st. As with ALL Mortgage loans, the Interest owed is paid after it is earned. In other words, the February Payment is for all of January's Interest (Interest paid in arrears). Another way to say it is, "You skip the month after the month you close in. Then the montly Mortgage Payments begin".
Naturally, in addition to the Interest owed, you pay down the Principal Balance proporionately, as well as 1/12th of the Taxes and Insurance(s) due for the year. All of these portions together are what becomes the Total Mortgage Payment (commonly known as PITI - Principal, Interest, Taxes, and Insurance).
The million dollar question is typically then: WHO do I make my Mortgage Payment to?
While there is no one definitive answer to this question, the greatest percentage of Home Buyers will make their payments to a Mortgage Loan Servicer. That Servicer is likely not the same party as the Loan Originator. And that is where it gets confusing for many ...
Remember when I said that Mortgage Loans often get "sold"? That means your loan has been placed with a different party than the grantor of the loan. Subsequently, the first payment or two can (might) be made to the company your Originator works for ... or until the loan gets successfully "sold" and set-up for payment elsewhere for servicing. Current and recently Closed loans are reviewed at this point for accuracy, completeness, and compliance to all Regulatory Guidelines now in place for that individual loan.
As you can guess, this review process can take 30, 60, 90 days to accomplish. But Buyers/Borrowers must remember that the Terms of the Mortgage (Interest Rate, Loan Term, Fixed or Adjustable Program) can NEVER be changed by the Servicer after their Closing. Real Estate Taxes and Insurance rates can change and fluctuate however. So any changes to your Monthly Payment will come as a result of those things, not changes in your actual Mortgage Terms.
A good and thorough explanation of your Mortgage Payments and Mortgage Payment Services should be provided during your actual Mortgage Process ... and then again at your Closing. That way you are better prepared for the transition to your new Mortgage Servicer when it occurs.
Your letter of direction or communication will typically arrive within that 30 to 90 day window mentioned above. It will include the details ... and possibly payment coupons or booklet ... within it. From that point on, you should just follow the Servicers directions in regards to making your monthly Mortgage Payments.
After the Closing: What About Mortgage Payments? Should issues arise regarding your Mortgage Servicer ... or should you have questions, please do not hesitate to contact me. As your Mortgage Originator, I will be happy to help wherever and whenever I can ...
* Looking to Buy or Refinance a home in a Lincoln-Way Community, Will County, or elsewhere in the Chicagoland area? Contact Me! I'll be happy to put my 36 years of mortgage experience and expertise hard to work on your behalf.
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