Tips & Special Topics
Who Services VA Mortgage Loans
Added February 10, 2010
Many borrowers may notice that after closing on a VA loan, their mortgage is transferred to another company. This is because the VA-approved lender that makes the loan might not necessarily choose to service the loan. Many mortgage companies operate by selling their loans to investors, thus recovering capital to make new loans.
The servicing company receives payments. It also handles any escrow accounts and sends out late payment and delinquency notices as needed. And finally, it handles foreclosures when necessary.
It’s not uncommon for VA loans made by one company to be serviced by another. In fact, a minority of all mortgages stay with their original lenders to be serviced. This is also often true of VA loans. The terms of a VA loan that is transferred to another company stay the same. Borrowers should know that when they get any type of mortgage, VA or otherwise, it is possible that the loan can be sold to another company to be serviced. And, if a mortgage company plans to sell a loan, a document regarding the possibility of the sale of the loan is required at closing.
When refinancing or purchasing a home with a VA mortgage, it is highly likely that the loan will be transferred and serviced by another company sometime during the life of the loan. To be safe, borrowers should verify that escrow payments are still accumulating after this happens. It is not unusual for the escrow payment to change slightly, but if a mortgage is being transferred within a couple months of the deadline for paying annual or semi-annual real estate taxes, a borrower may want to confirm with the new servicing company that these will be paid on time.
Lenders may sell a mortgage for the loan amount plus a fee known as a service release premium. Because mortgage companies that sell loans renew their capital when they sell, they can create new business immediately rather than wait for each loan to be paid back over fifteen or thirty years. It’s this ability to continually create new business which helps facilitate the flow of loans.
If a mortgage is transferred to another company, a borrower should receive a written notification from both the old company and the new company. The transfer of a mortgage will not change the rate or balance of the loan, payment amount, payment date, or any other terms of the loan.
For a 60 day period following the transfer of a mortgage, the new servicer cannot report payments sent to the former servicer as being late. This does not relieve borrowers of the responsibility for the payments. Borrowers sending payments to the previous servicer is a problem that occurs frequently when mortgages are transferred.
It’s standard to receive a servicing disclosure form at closing that explains the lender’s guidelines on selling and transferring mortgages and how often they have done it on average, over the past three years. This disclosure is federally mandated.
Whether a VA loan is sold or not, knowing the facts can assure that borrowers stay one step ahead in their financing affairs. For more information on VA loans and VA home loan transfers contact a VA Loan Professional.
