What is Mortgage Servicing?

Mortgage Servicing: 

Mortgages [1] are typically packaged and sold to either a GSE (Government sponsored Enterprise, i.e., Freddie Mac or Fannie Mae) or to a Warehouse Lender.  But when a mortgage is sold, it is typically divided in two parts:

• The mortgage note itself,
• Mortgage servicing rights.

I have already talked about mortgages, GSEs and Warehouse Lenders.  Here I want to focus on mortgage servicing. 

Mortgage servicing rights (MSR) are the rights to receive a portion of the interest coupon and fees collected from the mortgagor for performing specified loan administration activities. Upon sale of the related mortgage loans, the total cost of loans are allocated between the MSR and the mortgage loans.

Some large banks like Bank of America specialize in mortgage servicing.  Often, the profit margin is greater in the servicing than in the sale of the mortgage note itself.  Nothing in life is permanent, but I have often heard Bank of America mortgage loan officers state that if you get a Bank of America mortgage, Bank of America will service your loan for the life of the loan.  This means that you will never have to send your mortgage to a new investor when the mortgage note is sold.  I also suspect that a major part of Bank of America buying Countrywide was to obtain Countrywide's servicing portfolio.

[1] Definition of a Mortgage:  A Mortgage is a contract or promissory note to pay money you have borrowed, and your deed of trust is a pledge of real estate you own as security for that note.  You obtain a mortgage when you either purchase or refinance a property.