Get a mortgage from an unstable bank?

May 9, 2008 11:59 AM

We're getting a mortgage. One place I'll be shopping is Citibank, since I've been a customer for a long time. My concern with them is the massive shedding of assets they're undergoing and how it would potentially affect me as a lendee.

I'm not concerned with whether this would impact my ability to get a good rate through them or anything- either I will or I won't. My concern is if they come up with the best deal.

If I take a mortgage from them, and they turn around and sell either the mortgage or the entire business unit, are there any additional risks this would bring to bear upon me? Yes, I know that mortgages are bought and sold regularly, but are there any outlying scenarios that could make it not worth doing?

posted by mkultra to work & money (8 comments total)

My second mortgage (80/20) is through Citibank, after being sold by my initial lender. It shouldn't really matter who your mortgage is through, as long as the initial terms are acceptable to you. Anyone who's buying your mortgage has to abide by those terms.

Also, I've had no problems with Citi, aside from a mixup when I tried to make additional payments. Apparently they're not set up to do that easily.
posted by electroboy at 12:28 PM on May 9, 2008

your mortgage will be sold. This is inevitable. Mine has gotten sold more times than I can count in the 18 years since I first bought a home. As electroboy notes, to you, it's a non event, except that you would have to send your real estate tax bills to another address.
posted by stupidsexyFlanders at 12:33 PM on May 9, 2008

It isn't inevitable that your mortgage will be sold. Mine never has been and never will be. So if having your mortgage sold is a concern, see if you're eligible for one from USAA or another company that promises not to sell it.
posted by The corpse in the library at 1:12 PM on May 9, 2008

The answer to your question is, no, there are probably not outlying scenarios that make it not worth doing. The only real risk to you is that you mortgage gets serviced by (you don't really care who owns it) someone who does a poor job in a way that affects you, like they don't process your payments or something like that. However, as long as you are generally aware of what is going on and make sure that you are paying every month and your checks are being cashed (and that you read the mail you get about your mortgage) there is not much risk there. Mortgage servicing is pretty sophisticated. While there are always errors and problems, they are not that common.

The fact that Citibank is selling assets may make it more likely that your mortgage gets sold, but it probably does not make it any more likely that your mortgage will get serviced by someone else than it would if you are getting a mortgage from any random bank.

The corpse in the library is right that not all mortgages get sold (or serviced by a different party). My Wells Fargo mortgage is still serviced (and held) by Wells Fargo. Lots of major banks retain their mortgages depending on their strategies and approaches. I think that you can even get some mortgages that can't be sold, but I doubt it is worth the additional cost and hassle.
posted by iknowizbirfmark at 1:35 PM on May 9, 2008

I did an 80/20 thing, too. Countrywide sold (or spun-off, or something?) my 20 to CitiMortgage, and now I can no longer access ANYTHING about that loan online. No online service. I used to be able to view payments, make payments, view my loan docs, transation history, posting date, anything and everything I could ever want. Now it's phone or mail. Totally fucking annoying.
posted by peep at 2:34 PM on May 9, 2008

There's really no risk associated with having your mortgage sold.

The only things to be really sure of are:
a) If you get notified that your mortgage has been sold, that the notice is in fact true. There are scammers who send out fake notices.
b) be aware that some banks have different escrow rules than others, so they might increase your escrow a bit, but that shouldn't be a big deal either.
c) that you have solid records of payments sent on both sides of the crossover, to make sure all your previous payments were correctly applied, and that they are receiving new payments successfully.

It shouldn't really be a problem, but it's worth being anal about, since a mortgage is a fairly important bit of your financial life.
posted by Project F at 2:57 PM on May 9, 2008

Our first mortgage was with our bike riding mortgage broker buddy. It was from a tiny bank on Long Island, and was almost immediately bundled and sold. No big deal. It went to WAMU. When we refinanced we went with Wachovia. It hasn't been sold, but I had no online visibility. When I asked, they said, 'oh, you'll need a bank account with us. Put a hundred bucks in the bank, we'll give you a free safety deposit box for opening the account, and you'll be able to see all of the transactions.' I wouldn't lose a ton of sleep over it.
posted by fixedgear at 5:11 PM on May 9, 2008

What often happens is that the debt of your mortgage is sold behind the scenes, but that the original company continues to service the loan. IE, they collect your payments and then send the money to whoever bought it. From your perspective, you don't know the difference.

For example, they make a bunch of mortgages at 6%. They gather up $10,000,000 of their mortgage debt and sell it as a bond to someone at 5% a year (or whatever). That somebody gives them $10,000,000, and the bank gives them 5% a year out of whatever they collect from those mortgages. Now the bank has another $10M to fund other loans they want to make, and they are making that 1% differential as profit.

The recent problems occurred when the banks and investors got greedy- they saw that people wanted mortgages no matter what the price, especially adjustable rate ones. So they make those loans at 4% (or whatever), knowing that in a few years they are going to start being 8% loans. They bundle them up into bonds that pay 7% and sell them to investors clamoring for the opportunity of a higher paying bond. Now the bank owes that investor 7% a year. Again, the bank takes the loss knowing that in a few years they'll make it back. Except that the people holding those ARMs start to refinance away or foreclose away. Now the bank is stuck- they owe their bond holders 7%, but they'll never be able to make enough money to cover it. Not only are they losing money, but that money they are losing isn't available to be loaned out. And there's your market contraction.

They aren't going to offer a mortgage contract that they don't want to. Shop around and choose the product with the best terms for you.
posted by gjc at 11:04 AM on May 10, 2008