Three entities are involved in the servicing of our example loan.
The Servicer is the company that owns and operates the Nortridge Loan System software. They are paid a fee of $15 per payment collected by their client: The Lender to service the loan. This servicing includes the accrual of interest, the billing of monthly payments, the collection and processing of those payments, and collections activities if the borrower does not pay in a timely manner.
The Lender is the company that has lent money to The Borrower. The lender pays out the principal advance at the time that the loan is funded, and collects the principal and interest payments from The Servicer, less the $15 monthly payment servicing fee. The lender has assumed all of the risk of the loan, and with the exception of the Servicing fee, is entitled to all of the interest income.
The Borrower is an individual who has purchased a home and taken out a mortgage which is advanced by The Lender and administered by The Servicer.
The loan is a 30 year mortgage of $265,000 with a fixed interest rate of 4.875%. The loan may also include Tax Escrow and a Mortgage Insurance Premium, although these will not be modeled in this example.
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