What happens to a mortgage if the lender goes bankrupt?
August 17, 2007 6:29 AM Subscribe
If my home mortgage holder is Countrywide (it is), what happens, in practical terms, if Countrywide were to go bankrupt? Would they call the loan, forcing us to get financing elsewhere to cover it? Or would another lender assume the debt without our having to take any action? Or what?
They would sell the debt off to another lender. They can't legally change the terms of the loan on you.
posted by mattholomew at 6:40 AM on August 17, 2007
posted by mattholomew at 6:40 AM on August 17, 2007
Best answer: Countrywide might own your loan, service your loan, or both. In either case, if Countrywide were to go bankrupt, it would continue to hold and/or service your loan for a period of time, and then it would sell your loan and/or loan servicing rights to some other financial institution.
Bankruptcy and post-bankruptcy sale does not create or increase any right to call an ordinary mortgage. However, if your loan is already callable, the bankruptcy, or the whim of the buyer out of bankruptcy, might trigger a decision to call that might not have been made otherwise.
Note that if you have some exotic financing which might technically include lease or other contract elements, bankruptcy could create some rights that didn't exist before...
posted by MattD at 6:40 AM on August 17, 2007
Bankruptcy and post-bankruptcy sale does not create or increase any right to call an ordinary mortgage. However, if your loan is already callable, the bankruptcy, or the whim of the buyer out of bankruptcy, might trigger a decision to call that might not have been made otherwise.
Note that if you have some exotic financing which might technically include lease or other contract elements, bankruptcy could create some rights that didn't exist before...
posted by MattD at 6:40 AM on August 17, 2007
I'm not sure what your mortgage provides, but I don't believe they can simply "call the loan." The loan would be an asset of the estate that would be liquidated in the bankruptcy (assuming Chapter 7) -- in other words, it would be purchased by another lender, and the only significant change for you would be where you send your monthly check. If it's a Chapter 11 bankruptcy, the loan would presumably remain an asset of Countrywide as it worked to restructure its debts.
posted by pardonyou? at 6:40 AM on August 17, 2007
posted by pardonyou? at 6:40 AM on August 17, 2007
This happened to my Mom in the eighties during the savings and loan crisis. The bank that her mortgage was owned by went under and it was taken over by the Resolution Trust Company, the quasi-government agency created to handle the problem. Eventually they sold off her loan to a private mortgage company. From her end, the only changes throughout the whole thing were the address to send the check.
posted by octothorpe at 6:50 AM on August 17, 2007
posted by octothorpe at 6:50 AM on August 17, 2007
Callable home mortgages, which the lender could cancel at any time, basically went the way of the dodo after the Great Depression; it was the mechanism whereby many people who could probably have continued to make payments still ended up screwed and homeless in the dust bowl.
Generally, the lender cannot now modify the terms at which the loan was granted (adjustable rate arrangements excepted) without the mortgage-holder's consent to refinance.
I got this information from a link posted on a metafilter subsite months ago by ikkyu2, if memory serves. I'll try to dredge it up, as it was quite an interesting read.
posted by The Confessor at 7:37 AM on August 17, 2007
Generally, the lender cannot now modify the terms at which the loan was granted (adjustable rate arrangements excepted) without the mortgage-holder's consent to refinance.
I got this information from a link posted on a metafilter subsite months ago by ikkyu2, if memory serves. I'll try to dredge it up, as it was quite an interesting read.
posted by The Confessor at 7:37 AM on August 17, 2007
Ditto above on the illigality of "calling the loan."
One more thing to keep in mind is that once the loan is assumed by a new lender, you have a 60-day grace period on your payments. This means that even if you're late a month and a half late with your payments because you didn't get the information on time, were confused about where to send the payments to, etc., the lender CANNOT legally impose any late fees or report you to credit rating companies for having a late payment.
posted by jujube at 9:11 AM on August 17, 2007
One more thing to keep in mind is that once the loan is assumed by a new lender, you have a 60-day grace period on your payments. This means that even if you're late a month and a half late with your payments because you didn't get the information on time, were confused about where to send the payments to, etc., the lender CANNOT legally impose any late fees or report you to credit rating companies for having a late payment.
posted by jujube at 9:11 AM on August 17, 2007
The original URL of the article I referred to in my previous comment 404'd, but this looks like a pretty good substitute for most of its main points.
posted by The Confessor at 9:19 AM on August 17, 2007
posted by The Confessor at 9:19 AM on August 17, 2007
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posted by spikeleemajortomdickandharryconnickjrmints at 6:40 AM on August 17, 2007