Why are Some Loans Not Serviced by My Mortgage Lender?

The complexity of the mortgage process can make searching for and securing a loan difficult and confusing. There are many considerations to be made by both the lender and the borrower and finding a match can be difficult.

One relevant complication is that you may find cases where your mortgage lender does not service your loan. While this isn’t a terribly significant issue, it can add some inconvenience and confusion to a process that doesn’t need more hurdles. For that reason, Sunflower Bank is proud to retain servicing on 97% of our loans. As a result, in most cases, your mortgage loan experience is as simple as it can possibly be.

But what about the other three percent? And why do some mortgage companies service even less? We’re here to clarify the difference between a mortgage lender and a mortgage servicer, as well as explain why that difference might exist.

What is the difference between a mortgage lender and a mortgage servicer?

First, it is important to understand that mortgage lenders and mortgage servicers are not mutually exclusive capabilities within one company. While it’s common for lenders to sell the servicing elsewhere, it’s possible for your lender to also be your servicer (as is the case with most Sunflower Bank loans).

So, what separates them?

A mortgage lender is the financial institution that provides you the loan. They are who provide you the money for the house.

After you have received your loan, a mortgage servicer is who manages it. If you have day-to-day questions, need to adjust your payments, or simply make a regularly timed payment, you would contact your servicer.

While it certainly doesn’t need to be a prerequisite, the advantage of choosing a lender who services their loans is clear: simplicity. When your lender maintains servicing on your loan, you can feel a little more secure in the knowledge that the relationship you have already created will continue; you won’t need to re-find your sense of security in a new partner that you may not know as well.

Why doesn’t my lender service my loan?

Typically, and perhaps unsurprisingly, a mortgage lender’s decision to service a loan or transfer servicing elsewhere comes down to two things: capability and profitability.

For most smaller lenders, servicing a loan is simply too much work to handle given staffing and infrastructure constraints. If they don’t have the available resources to service loans and determine that the cost of adding the required resources outweighs the benefit of doing so, they make the decision to transfer servicing elsewhere.

The type of loan you receive will also affect your lender’s ability to service your loan (or their need to transfer servicing). Some loans are legally required to be serviced by a designated agency, while others may be ineligible for servicing based on the financial institution that backs the lender. In that case, the lender may still provide the loan but be unable to service it.

When does Sunflower Bank not service loans?

As we mentioned above, Sunflower Bank services 97% of the loans that we offer. However, there are two occasions where that is not possible. Both circumstances are dictated specifically and explicitly by the type of loan provided

One such instance is Down Payment Assistance programs. These are mortgage opportunities that allow you relief on your down payment. 

The reason Sunflower Bank does not service Down Payment Assistance loans is legal; because these programs are typically state-sponsored, the loans are required to be sold to the servicer that has been chosen by the state agency. There is only one master servicer chosen to handle the relationship with the state. As a result, we can still provide the loan, but we cannot service it.

The other scenario in which Sunflower Bank does not service the loan would be some of our Non-Agency loans. These loans are not backed by the agencies and are serviced by the larger institutions.

Knowing who services your loan can keep your mind at ease.

Life can be just a little easier if your lender is also your servicer. If nothing else, it allows you to keep your list of contacts a bit more limited. However, if you do find that the right loan for your homebuying situation requires an outside servicer, that’s okay. Consider investigating that ahead of time, so there are no surprises when you pick your mortgage partner.

For more information on a wide range of mortgage opportunities, contact a Sunflower Bank Mortgage professional today. We are here to help.