Loan servicing


Loan servicing

Loan servicing is the process by which a mortgage bank or subservicing firm collects the timely payment of interest and principal from borrowers. The level of service varies depending on the type of loan and the terms negotiated between the firm and the investor seeking their services.

Overview

Servicers are normally compensated by receiving a percentage of the unpaid balance on the loans they service. The fee rate can be anywhere from one to twenty five 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.

The net present value of the flow of payments received from servicing less the expected costs to servicers creates an asset which remains on the balance sheets of servicers. Since in refinancing periods loans are often quickly prepaid and hence servicing fees cease, the value of these assets is extremely volatile.

There are economical loan servicing products that can also be purchased.


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