Why Does Interim Servicing Exist?

On the surface, interim servicing should not exist. So why does it?


Paying a mortgage bill
Photo by Alexander Suhorucov from Pexels

Interim servicing is the result of friction between the mortgage originations and mortgage aggregation/securitization process.


If a loan is not sold prior to the first payment coming due, the lender is on the hook for collecting the payment. But this doesn’t mean interim servicing is going anywhere. While lenders can work to reduce their dwell times, sometimes it’s not in the lender’s best interest to immediately sell the loan or it’s simply not possible.


Reasons lenders may not immediately flip their loans


Required aging of mortgages

For subprime loans, it is common practice for a lender to collect the first few months of payments to prove the borrower’s ability to pay.


Filling of mortgage pools

Loans can be sold in bulk or one-off as they close. While bulk & flow agreements have benefits, one result of bulk agreements may be that some loans may not be transferred until over a month after closing.


Arbitrage pricing

Similar to why a lender may choose to retain mortgage servicing rights after selling off the loan, given rates and current pricing conditions, it can be in the lender’s best interest to hold a loan.


Closing errors

While a lender should obviously aim to reduce errors, if a loan is missing critical paperwork, it is often in the lender’s best interest to retain the loan until issues are resolved (instead of selling the loan for a massive discount).


 

Luckily for lenders, interim servicing does not have to be difficult. With Willow, borrower notifications and the processing & recording payments are automated. Manual data entry is eliminated & you never have to worry about mailing borrowers a goodbye letter. To learn more about how Willow can automate your interim servicing processes, reach out to us at sales@willowservicing.com.