Who Manages My VA Loan After Closing?

Marcus Marion, CMA™ 2 months ago 0 17

Military members and veterans who use VA loans to buy a house often have questions about what happens to their loans after closing. One of the most common questions has to do with something known as “loan servicing.”

The big question: Who manages my VA loan after closing?

The answer will depend on your mortgage lender’s business model, among other factors. Some lenders transfer servicing responsibilities to a third-party company known as a loan servicer, while others might keep it in house. You’ll be informed about this, by the way.

Either way, you should receive information about who is managing your VA loan, and how to reach them.

What Happens to Your VA Loan After Closing

This will all make more sense if we put it into a broader context. While the VA loan process can vary from one mortgage company to the next, it usually looks something like this:

1. Loan Origination: The process begins with the origination of a mortgage loan. A borrower applies for a VA loan through an approved lender. The lender evaluates the borrower’s financial information, credit history, and property details to determine eligibility and approve the loan.

2. Closing and Funding: Once the VA loan is approved, the borrower proceeds to closing, where the final documents are signed, and the loan is funded. At this stage, the borrower receives the funds necessary to purchase the property or refinance an existing mortgage.

3. Loan Sale: After closing, the lender may choose to sell the mortgage loan to another entity, such as a mortgage aggregator, government-sponsored enterprise (GSE) like Fannie Mae or Freddie Mac, or a private investor. The decision to sell loans can be driven by various factors, including liquidity needs, risk management strategies, and market conditions.

4. Pooling and Securitization: In some cases, lenders package multiple mortgage loans together and sell them as mortgage-backed securities (MBS) to investors. This process, known as securitization, allows lenders to transfer the risk associated with mortgage loans to investors while generating additional liquidity to fund new loans.

5. Transfer of Servicing Rights: When a VA loan is sold to a new owner or investor, the servicing rights associated with it can be transferred to a loan servicer. The servicer is responsible for managing the loan on behalf of the new owner or investor, including collecting payments, processing escrow transactions, and providing customer service to borrowers.

6. Notification to Borrowers: Borrowers are typically notified when their VA loan servicing and management is transferred to a new servicer. They’ll typically receive a welcome letter or notice, informing them of the transfer and providing instructions for making payments.

The VA’s Role in All of This

The U.S. Department of Veterans Affairs backs or guarantees VA loans. This gives mortgage lenders an added layer of protection against default.

But the VA doesn’t actually service home loans or collect payments from borrowers. As with conventional mortgages, servicing is typically handled by private mortgage companies known as loan servicers.

As it states on the Department of Veterans Affairs website:

“The Department of Veterans Affairs (VA) defines a servicer as a mortgage company that collects funds for a debt incurred by a borrower to purchase a home. Servicers play a critical role in the VA Home Loan Program, as many essential loan management activities are delegated to them.”

By guaranteeing a portion of the loan, the VA also does the following:

  • Protects Lenders: The government backing minimizes the lender’s risk, encouraging them to offer favorable terms to veterans.
  • Benefits Borrowers: This program offers easier qualification, no down payment requirements, and competitive interest rates for veterans and eligible service members.

A Closer Look at What Servicers Do

Finally, let’s look at what loan servicers do when it comes to managing VA loans after the closing and funding has occurred. While the exact services performed can vary, VA loan servicers usually handle the following management tasks: 

Payment Collection: The loan servicer is responsible for collecting monthly mortgage payments from the borrower. Homeowners can submit their payments through the Automated Clearing House (ACH), online bill pay, the servicer’s website or app, or by traditional mail.

Payment Distribution: The servicer takes your payment and distributes it among the necessary parties, which might include the loan investor, property tax authorities, and insurance companies (if you have an escrow account).

Record Keeping: The servicer will also maintain detailed records of your payments, balances, and loan history. After all, they’re the ones managing these payments.

Customer Support: Loan servicers are your point of contact for questions about your loan, such as requesting payoff amounts or addressing billing issues. You should have received their contact information when the loan was sold or otherwise transferred.

Delinquency Management: If you fall behind on payments, the servicer will work with you to understand the situation and explore options to get your loan back on track. A foreclosure is the last resort; it’s in everyone’s best interest to avoid that.

As mentioned above, loan servicers can play an important role in preventing foreclosures. This is true for conventional, FHA and VA loans alike. According to the Urban Institute:

“If homeowners fall behind on their payments, the servicer’s role is to work with the homeowner and help them get back on track. If that is not possible, the servicer pursues a loan modification (if the homeowner is eligible) or explores an alternative to foreclosure, such as a short sale or deed in lieu of foreclosure.”

Now you know what happens to your VA loan, and who manages it, after the closing!

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