The Hidden Risk Lurking Between Closing and Servicing Transfer
By David Aach, COO of Blue Sage Solutions, Englewood Cliffs, N.J.
For many lenders, the closing table feels like the finish line. But between the celebratory handshake and the loan’s transfer to a permanent servicer lies a critical but often overlooked phase—interim servicing. It’s typically a brief period of time where small missteps can trigger big consequences.
Often spanning 30 to 90 days (and sometimes longer), this transitional period is underserved. Although there aren’t major origination milestones, beneath the surface, there are a disproportionate share of compliance risk and the experience can undermine borrower confidence. It’s time our industry started paying more attention to it.
Interim Servicing: Long Ignored, Now Under the Microscope
Historically, interim servicing hasn’t received the same investment or strategic focus as origination or full servicing. That’s understandable—there were few (if any) platforms built to support it. Most lenders patched together manual processes, spreadsheets, or relied on outdated add-ons bolted onto their LOS. It wasn’t ideal, but it got the job done, albeit with significant manual processes.
Or so we thought.
Today, the regulatory landscape has shifted. The CFPB, state regulators and even investors have sharpened their focus on borrower treatment throughout the mortgage lifecycle—not just at origination or post-transfer. Interim servicing is no longer an afterthought; it’s a frontline compliance and reputational risk zone.
In 2023, the CFPB issued more than $3.7 billion in penalties across financial services, a significant portion of which were tied to servicing-related violations, including interim servicing issues. And while interim servicing rarely makes headlines, it’s increasingly a source of borrower complaints and audit findings—often due to missed payments, poor handoffs or inconsistent communication.
Where Lenders are Most Vulnerable – and Don’t Realize it
The risk isn’t theoretical. Here’s what many lenders may be overlooking:
• Borrowers don’t distinguish between servicers or servicing stages. If something goes wrong, they blame the lender—not the handoff. Your brand is on the line.
• The compliance burden is real. From Welcome Letters, First Payment Instructions, to escrow management, credit reporting and servicing transfer notices, the regulatory requirements during this phase are extensive.
• Manual processes increase exposure. Tracking deadlines in spreadsheets, reconciling payments across systems or responding to borrower inquiries without centralized data isn’t just inefficient—it’s a liability.
In an environment where one missed payment or incorrect borrower notice can trigger an audit, lenders can’t afford to treat interim servicing as a low-priority function.
Reframing Interim Servicing as a Strategic Imperative
The good news? Interim servicing doesn’t have to be a blind spot. With the right tools and operational mindset, lenders can transform this high-risk phase into a competitive differentiator.
Modern digital servicing platforms purpose-built for this space are eliminating manual bottlenecks, enabling real-time compliance workflows and delivering consistent, branded borrower communications. Most importantly, they give lenders control: visibility into the borrower experience, built-in audit trails for regulators, and the confidence that post-close processes are as polished as origination.
Lenders who embrace digital interim servicing gain more than efficiency—they protect their reputations, reduce exposure and strengthen borrower trust at a critical inflection point in the mortgage journey.
Don’t Let the Quiet Phase Be Your Weakest Link
Mortgage lending is a trust business. And trust can be lost long before the first payment is due.
As regulators increase their scrutiny and borrowers demand more transparency, the case for transforming interim servicing has never been stronger. It’s not just about compliance—it’s about control. It’s about owning the entire borrower experience, not just the front end of the transaction.
The future of lending belongs to institutions that see the entire mortgage lifecycle—interim servicing included—as an opportunity to lead, not a corner to cut.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
