Mortgage servicing is the work of collecting a home loan's monthly payments, keeping the loan's records and, when the borrower stops paying, managing the loan through default to foreclosure. Mortgage servicing software runs that work. A mortgage is a home loan for which the home is the security, and the company that does the servicing is called a servicer. Servicing as a separate business is mainly American. In America, the servicer is often a different company from the lender, and the right to service a loan is bought and sold.
Consider a home owner in Florida, in the United States, with a $240,000 loan over 30 years at 6.5% interest. Each month she pays $1,850. The servicing software splits this payment into two parts. About $1,520 is principal and interest, the instalment that repays the loan, which Indians call the EMI. About $330 goes into an escrow account, money that the servicer holds to pay her property tax and home insurance when they fall due. Once a year, the software pays the county's property tax and the insurer's premium from that account. It also sends her a yearly statement, and reports her payments to the credit bureaus.
Then she loses her job and misses three payments. The software now treats the loan as in default. It moves the loan from normal servicing to default servicing, and to debt collection for calls and letters. American rules require the servicer to offer help first, which is called loss mitigation. The options include a pause in payments, called forbearance, and a loan modification, which lowers the payment by changing the rate or the term. The software checks which options she qualifies for. It records every letter and call, because regulators can audit them. It also asks an automated valuation model what the home is worth today. If nothing works, the servicer starts foreclosure. The lender takes the home and sells it, often at a foreclosure auction.
Where does the loan come from? A new loan is set up in the lender's loan origination system and then handed to the servicer. The servicer may also use property risk data to see which borrowers' homes are in a flood zone, where flood insurance is required.
In India, the lender usually services its own home loans. The bank or housing finance company collects each EMI from the borrower's bank account through an e-mandate, a standing instruction that lets the lender debit the account every month. If EMIs stay unpaid for more than 90 days, the loan is classified as a non-performing asset (NPA). The lender can then take possession of the home under the SARFAESI Act, without going to court first.