A mortgage servicing advance is a payment that a mortgage servicer makes from its own funds when a borrower fails to pay. Servicing contracts for securitised loans commonly oblige the servicer to keep passing scheduled principal and interest to investors, to pay property taxes and insurance premiums that protect the collateral, and to meet legal and maintenance costs during foreclosure. These three types are known as principal and interest advances, escrow advances and corporate advances.
Advances are not a loss to the servicer in the ordinary course: they are recovered from later borrower payments or, ahead of investors, from the proceeds when the property is sold. They are, however, a funding burden, because the servicer must finance them until recovery, and that burden rises sharply when delinquency increases. Non-bank servicers often borrow against advance receivables. The obligation is part of loan servicing and affects the value of mortgage servicing rights.