The intent of the following article is to provide an overview of mortgage industry seller loan servicing issues and demonstrate methods that mortgage industry investors use to track and report loan servicing issues, by seller, for the purposes of risk management and performance monitoring.


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Seller Mortgage Loan Servicing Issue Overview
In an effort to offer more loan products and remain competitive in today's expanded marketplace both the bank and mortgage brokers participate in correspondent or wholesale lending programs. Correspondent and wholesale lenders refer to the banks and mortgage brokers that sell them loans by many names - Originators, Brokers, Lenders, Sellers or Correspondents. For the purpose of this article the banks and mortgage companies that originate the loans are "Sellers" and the correspondent or wholesale lenders that fund or buy the loan from the seller are "Investors".

Sellers, based on investors' guidelines, make a lending decision and fund the mortgage loan using their own money, the investor's money or a warehouse line of credit. As soon as the loan has closed, it is sold to an investor at a previously negotiated price. This dynamic works great for the borrower. The borrower is dealing with the seller who will close the loan, and the seller is able to shop the mortgage around thereby obtaining the borrower a lower interest rate.

The investor funds the loan and either sells it to another investor or makes the loan part of its servicing portfolio. Once the loan is made a part of the investor's servicing portfolio the investor is responsible for sending statements and accepting payments from the borrower. During the course of servicing the loan the investor may note servicing issues or loan defects that can be traced back to the seller.

The "Reporting Mortgage Loan Servicing Issue Statistics" section of this article details steps for creating a report that an investor might use to track and report servicing issue statistics for loans that a seller has delivered to the investor. A seller with a high percentage of servicing could warrant a caution or corrective action letter from the investor. Serious servicing issues might warrant a suspension of seller privileges or legal action. The Sample Seller Mortgage Loan Servicing Issue Report in this article can be used as a model for a stand alone report or incorporated into a comprehensive Seller Scorecard report.

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