If you’ve ever received notice that your mortgage servicer has changed from one company to another, that change is often the result of a transaction involving a Servicing Release Premium (SRP). An SRP is the amount a mortgage servicer pays the original lender for the right to service the loan, which includes collecting payments, managing escrow accounts, and providing customer service throughout the loan’s life.
Think of the SRP as a purchase price for the loan servicing rights: the original lender focuses on originating loans, while the servicer specializes in long-term loan management. The servicer’s payment (the SRP) compensates the lender for transferring these rights and allows the lender to free up capital to fund new loans.
The size of the SRP depends on several factors, including the loan balance, interest rate, borrower creditworthiness, and loan type. Loans with higher balances, higher interest rates, and lower prepayment risk usually generate higher premiums. Additionally, loans with escrow accounts are more valuable to servicers because they provide steady management and reduce risks.
Importantly, this sale does not affect the terms of your mortgage loan. Your interest rate, monthly payment, and loan duration remain the same. The only change is who you send payments to and who manages the administration of your loan. The new servicer must notify you of the transfer and provide clear instructions. During the 60-day transition period after the transfer, if you mistakenly send payments to the former servicer, you are protected from late fees according to the Consumer Financial Protection Bureau (CFPB).
To ensure a smooth transition, carefully review any communications from both your old and new servicer. Update any automatic payment settings with your bank to reflect the new servicer’s information, and confirm your payments are correctly applied.
For more on mortgage servicing, see our Mortgage Servicing and Mortgage Servicer Transfer guides. You can also learn about escrow accounts and their role in mortgages in our Escrow Account article.
References:
- Consumer Financial Protection Bureau mortgage servicing transfer rules: https://www.consumerfinance.gov/rules-policy/regulations/1024/33/#b
- Investopedia definition of Servicing Released Premium: https://www.investopedia.com/terms/s/servicing-released-premium.asp
