Mortgage Subservicer vs Servicer: What Your Borrower Should Know

One of the most confusing post-closing experiences for borrowers is receiving a letter from a company they have never heard of telling them to start sending mortgage payments there. Understanding how servicing works helps you prepare clients and maintain the relationship after closing.

How Mortgage Servicing Works

Mortgage servicing is the right to collect monthly payments, manage escrow accounts, handle customer service, and process payoffs in exchange for a servicing fee, typically 0.25% to 0.5% of the outstanding balance annually. The servicer may be the originating lender (retained servicing) or a company that purchased the mortgage servicing rights (MSRs) in the secondary market. Servicing rights have financial value and are bought and sold independently of the loans themselves.

What a Subservicer Does

• ✦A subservicer is hired by the MSR owner to perform servicing functions on its behalf
• ✦The MSR owner (master servicer) retains the legal obligation to investors but outsources the day-to-day operations to the subservicer
• ✦From the borrower's perspective, the subservicer looks and functions like a servicer; they send the statements, process payments, and handle inquiries
• ✦Common subservicers include large operations-focused companies such as Nationstar (now Mr. Cooper), ServiceMac, and TMS
• ✦A servicer transfer requires a 15-day advance notice to the borrower under RESPA Section 6

Managing the Borrower Relationship After Transfer

Set expectations at closing: tell borrowers their payment may transfer to a new company within the first 60 days and that this is normal. Assure them the loan terms do not change in a servicing transfer. If a borrower contacts you after a transfer with a complaint about the new servicer, direct them to file a Request for Information (RFI) or Notice of Error (NOE) under RESPA Section 6 with the servicer in writing. The servicer must acknowledge within 5 business days and respond within 30 days.