Two assets are created at the time that you close on your loan: a promissory note and servicing rights. The first is the obvious of the two: at closing you sign a promissory note agreeing to pay back what you’re borrowing, plus interest. As you make payments, the owner of that note (most often Fannie Mae or Freddie Mac) will make money off of the interest that you pay.

The other asset created is a little less obvious: it is called servicing rights. Servicing rights exit because, well, your note holder wants nothing to do with you. Sure Fannie Mae wants your interest payments and all, but the logistics of managing your loan and dealing with you? They hire a servicer for that. The servicer tracks payments, manages your escrow account for taxes and insurance, sends tax statements, verifies insurance, and more. For their trouble, the servicer gets to keep a sliver of every payment you make. When you think of your “lender”, you are really thinking of your “servicer”.

If you have any questions about the servicing of your loan after closing don’t hesitate to ring us. The Consumer Financial Protection Bureau has assembled an excellent FAQ on servicing.