If you’re a real estate investor or are considering becoming one, there are several terms that you should be familiar with. One such term is mortgage service rights (MSR). Mortgage servicing rights is a contractual agreement in which a third party, typically a servicing company, collects mortgage payments on behalf of the lender and the institution they serve.
This is generally done in exchange for a fee. But, how does it affect you and your property investments? Take a look at our guide below and learn five things about mortgage servicing rights as a real estate investor.
You’ll Send Your Mortgage Payments to the Servicing Company
When it’s time to make your monthly mortgage payments, you’ll send these funds to a third-party company instead of the loan originator. As a result, your point of contact will also be the servicing company. So, if you have any questions or concerns regarding the payments of your mortgage loan, you may have to reach out to the MSR company.
The Mortgage Servicing Company Will Perform Various Tasks
Mortgage servicers have a variety of duties that they’re in charge of. The types of tasks that a MSR mortgage servicer may perform in regards to your property loan include:
- Making changes to your loan balance depending on the amount paid and interest
- Collecting and distributing taxes and property insurance during escrow
- Sending you your monthly statements or any notices that may arise
- Collecting both mortgage and escrow payments
You’ll Most Likely Encounter a Mortgage Servicing Company if You Borrow From a Top-Level Financial Institution
In many cases, top-level financial institutions and banks will use mortgage servicing rights. A significant number of these financial institutions will also offer their MSR services to other financial institutions. This way, financial companies can profit from originating loans and offering these services to other lending institutions.
Don’t Get Scared if You See a Different Company on Your Mortgage Statements or Correspondence
Your lender can switch the company they work with at any time or sell your home loan. As a result, you may see a different servicing company on the correspondence regarding your investment property.
So, don’t be alarmed if suddenly the name of the company isn’t what you’re used to. If you have any questions regarding the change of your mortgage servicing company, make sure to reach out to the lender or the new MSR provider.
Mortgage Servicing Companies Are Especially Important When Investing in Mortgage Notes
Many real estate investors stick with the traditional form of investing, such as purchasing single-family homes, apartment complexes, strip malls, etc., but did you know there are other ways to invest in the real estate industry?
Individuals can invest in mortgage notes, which are given to property owners along with their mortgage, for the possibility of earning higher-than-average returns. To start investing in real estate mortgage notes, you’ll have to buy the note and have it assigned to you by the lender. Instead of the borrower paying the principal and interest to the bank, they’ll submit all payments to you.
This is where mortgage servicing companies come in. Most investors will hire a mortgage servicing company since the mortgage industry is regulated heavily and for other administrative tasks, including collecting payment and sending borrowers their statements each month. This expense can cost you anywhere between $20 to $40 a month.
The Bottom Line
Mortgage servicing rights make the process of originating and maintaining home loans much easier for financial institutions. However, it can make it difficult to know who to contact regarding mortgage-related payments. If you’re having trouble, use the guide above as a starting point for your real estate investment journey.