What Happens If Your Mortgage Lender Goes Bankrupt
What happens if the bank that has my mortgage goes under?
In short… nothing (except the sender’s address on your payment) New Century Financial, subprime lender to the stars, just filed Chapter 11 bankruptcy and so everyone who normally makes payments to them must now mail their payments to whoever buys up all those loans from New Century Financial. For the borrower, what happens next will be no different than if your lender sold your loan to another bank - you just make payments to a new lender. See, a lot of “lenders” make their money by setting up the loan (originating it) and then selling it to another bank so that they can free up that cash and originate more loans. The big banks are willing to sit on the loan and collect the interest payments because they have tons of money, the smaller lenders rely on originating loans to make their money.
In the end, your home is already paid off. As long as you continue to make payments, you live in that house. If by some weird reason the company that owns the loan just disappears (and you are able to recover the title, which they will hold), you still own the home (of course, this will never happen). So, if your lender does go bankrupt, keep an eye out for who is now going to be doing the collecting and make sure to keep current.
This is just my opinion and I’m a novice at this, probably just like you, please consult a professional before doing anything (and please correct me if you know for sure).
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5 Comments - Share Your Thoughts
You are correct. Since the mortgages are mainly the only asset that the lender has, they will be the very first thing to be sold when the financial institution enters bankruptcy. It would be just like getting a mortgage from a large bank. One of these days you will get a letter in the mail telling you that your loan has been sold and here is the new address that you should send your payment to.
As far as your loan getting lost in the shuffle and you getting your house basically free our of the deal…..not bloody likely. ha
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I was wondering this the other day too.
I guess I was hoping that if your lender went bankrupt, you’d just own the house out right. But like wanzman said… fat chance!
So your mortgage is just sold off like any other commodity the bankrupt company owns? I guess that does make sense…
Do mortgages ever make their way into bonds? I’m not sure exactly how those all connect…
My mortgage broker called me and told me I’d be doing another loan process. It all seems rather strange, it would be logical that New Century would sell my loan but for me to have to refinance again just seems a little off. They said I won’t have to pay any re-finance fees, just my usual mortgage and then I’ll have a new loan. It just sounds rather strange to me…….
People’s Choice has just filed Chapter 11 and wants to auction off their existing mortgages, one of which is mine!
Why can’t I bid on my own mortgage?
I know I can’t so, when it gets sold to another lender, can I maybe renegotiate the terms of the loan? It is currently an ARM and we were in the process of looking for another lender anyway.
We would love to get a call from our broker telling us we get to re-fi for free!
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