Usually, lenders charge a service fee in order to cover their costs associated with mortgage loans. These fees can range from one to forty-four basis points, depending on the type of loan. They are calculated based on the quality of the underlying credit of the borrower. Generally, the more reputable the loan, the fewer fees are paid. The fees are generally due at the closing.
How Much Does Mortgage Servicing Cost?
A mortgage servicer, however, can be a bank, community bank, credit union, or other organization. The company handles the details of the home loan, including payment processing, customer service, and other long-term maintenance go here. The company may also charge fees directly to the borrower.
Mortgage servicing costs can be broken down into three major categories: direct costs, direct costs to service, and occupancy costs. Direct costs to service include such things as call centers, collections, escrows, and loss mitigation. On the other hand, direct costs to service include such things as investor reporting, loss mitigation, and default functions.
Historically, fully-loaded servicing costs have not decreased below $200 per loan since the Dodd-Frank Act of 2010. While this is a relatively low number, these costs increased threefold in the last five years. In 2021, fully-loaded servicing costs will hit $240 per loan.
In addition to the cost of servicing, Mortgages may have to pay for foreclosure costs. The costs associated with foreclosure include unreimbursed foreclosure costs, compensatory fees, and servicer penalties. This can be quite expensive for an organization with razor thin margins.
Loan servicing costs can also include late payment fees. Late payment fees are typically calculated as repayments plus a service fee to the loan servicer. When a borrower pays a late payment, the money is placed into an escrow account. This money can then be used to cover property taxes or insurance until the payment is due. In addition, the servicer can earn interest on the money.
Servicers can charge additional fees, such as forced place insurance, or they can charge a pay-off fee. The servicer may also charge a bankruptcy fee if the borrower files for bankruptcy. The fees charged by a mortgage servicer are generally determined by the size of the loan, the underlying credit quality of the borrower, and the service level required.
In addition to the cost of servicing, mortgage loan servicing operations can also incur other overhead costs, including technology and labor costs. To calculate the cost of servicing, divide the total cost of mortgage loan servicing operations by the average number of mortgage loans in the bank servicing portfolio.
In order to get an idea of what mortgage servicing costs, borrowers can get a monthly statement from their mortgage servicer. The statement should include details about the loan, including the amount owed, the fees charged, and the contact information of the servicer. These statements will also indicate whether a payment has been made recently, if there has been an error, or whether there is a payment due.