The lifecycle of a reverse mortgage has many phases, with a different party responsible for each. Though it can be difficult to imagine all the moving parts happening behind the scenes of a loan, a basic understanding of the responsibilities of the different parties and where they come into the process can be helpful to feeling in control of your loan process. It’s particularly important to understand the role of the loan servicer since this will be an ongoing relationship.
Who’s Who in a Reverse Mortgage Transaction?
In addition to a borrower, a typical mortgage transaction involves a broker, lender, and servicer. Each of these plays a unique role in the funding and life of the loan. Here is a quick breakdown.
- The broker. An intermediary between the borrower and the lender, the broker generally helps to find the best loan to fit the borrower’s needs. A broker is not an essential part of the mortgage transaction. You won’t engage with a broker if you choose to take a loan directly from a lender.
- The lender. The lender is the financial institution that provides money for borrowers to purchase or refinance a home. Within the lender, multiple people play a part in making the loan. The loan originator will assist a borrower in submitting a loan application. Different people at the lender, or retained by the lender, are responsible for processing and underwriting the loan, creating the documentation, closing, and funding the loan.
- The servicer. Servicers administer or manage the loan. A servicer may be the lender or another company. Due to loans changing hands, it is not uncommon for the servicer to change over the life of the loan, but the terms of the loan will not change. The most common change of servicer occurs when a loan in good standing has reached 98% of the allowed loan amount. At that time, it is transferred to HUD for servicing.
What Does a Loan Servicer Do?
The role of a servicer is to oversee the loan and manage its day-to-day administration. As a part of the loan administration, the loan servicer will monitor monthly payments distributed to the borrower. In addition, the servicer will determine if the borrower is making insurance and tax payments on the home and whether there are any delinquencies.
Notably, the servicer is the borrower’s point of contact for the loan after the funding. It is crucial for the borrower to stay in contact with their servicer throughout the life of the loan. If the borrower has any inquiries regarding the reverse mortgage, they should contact the loan servicer.
Loan Servicers and Reverse Mortgage
Because a reverse mortgage has terms that require ongoing borrower engagement, keeping communication open with the servicer is key to reducing misunderstandings and ensuring the borrower stays on good terms with their mortgage.
The servicer will send an occupancy certificate every year around the anniversary date of the mortgage, verifying that the borrower is living in your home. Borrowers should be vigilant about returning this document within 30 days of receipt to keep the loan on good terms. Some servicers provide an online borrower portal that lets borrowers take care of their annual occupancy certification online.
Upon the death of the last borrower, breach of loan terms, or vacancy for 12 months or longer, the servicer will notify the borrower or heirs to let them know the reverse mortgage is due and payable.
Regardless of how the borrower or the family chooses to pay off the mortgage, staying in touch with the servicer about decisions and plans can go a long way to making the process go smoothly.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.