Rules You Didn’t Know About in Loan Servicing

"CONTRACT" word written on a paper with a pen

Most mortgage lenders and firms takes time to evaluate the potential borrower to ensure that they will get their money back within a certain time frame.

Each borrower is a risk because most borrowers need money to either start a business or buy a house.

There are many rules in the mortgage industry that some people might not have a clue about.

I am probably talking about the newbie who are trying to get a loan for the first time.

When the borrower has their loan approved they would need to sign a contract.

Most people will not read the fine lines to the terms of services when signing up for an account on a website but when it comes to borrowing money, you must read every word in the contract.

In the article, we will look at something called “Gag Rule” that many lenders may add to the contract.

Some mortgage firms are assisting their customers who’ve gotten into hot water with their mortgages if they sign on to a gag rule.

Essentially, this means that if customers want their lender to reduce payments, for instance, they have to agree not to say anything negative about the lender.

In fact, the gag role isn’t particularly unusual; various mortgage lenders now require some customers to agree to the gag rule clause.

"CONTRACT" word written on a paper with a pen


The Gag Rule

Mortgage lenders have been employing gag rule clauses during settlement negotiations or when talking to customers about reduced payments.

In fact, sometimes lawyers of customers are required to sign the gag rule agreement.

Mortgage companies have been including this clause to prevent unhappy customers from talking about the lender negatively in public.

Now, this clause has become a veritable condition of many mortgage negotiations.

In some cases, lenders will not agree to settlements unless the customer also agrees not to sue again (Source:


Gag Rule Impact

When customers sign these gag rules, they may experience negative consequences down the road.

If a lender loses their documents or fails to provide customer service, the consumer no longer as the recourse of public outcry and, in some cases, litigation.

Effectively taking away these consumers’ access to further recourse, the gag rule is now regarded as something controversial in this sector.

While gag orders have been employed during litigation proceedings, they are now increasingly being used during regular loan modifications.


The Lender’s Viewpoint

Lenders have stated that the gag rule clauses protect them once the case has been settled.

For lenders, the gag rule is an important aspect of the settlement process.

Having agreed to the settlement terms, the lender believes it should not have to incur public comments of a disparaging nature that could hurt its business and reputation.

One issue that the gag rule highlights is the importance of reputation and how much banks and lenders rely on their reputations to attract business.

Lenders that work to nurture their relationships with customers stand to gain when it comes to marketing (Source:

Essentially, however, some want to make sure that if their customers can’t say anything nice about them, they shouldn’t say anything at all.

3 thoughts on “Rules You Didn’t Know About in Loan Servicing

  1. Well,reading all the Term & Conditions is a good practice before you sign a contract.But i guess there is nobody on this planet who takes the pains to read those hundreds of tiny words.
    Moreover as you said if most of the lenders are incorporating that Gag rule then the borrower is also left with no other option than to accept these T&C as his primary requirement is Loan.

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