what happens to borrowers from AHM?
August 3, 2007 9:22 AM   Subscribe

What happens to mortgage holders for these sub-prime lenders declaring bankruptcy?

American Home Mortgage will likely declare bankruptcy. So what happens to the loans they've funded? Do borrowers just get a free pass, or are their loans typically sold to another bank?
posted by indigo4963 to Work & Money (9 answers total)
The loans that American Home Mortgage still holds will be sold, or else retained by a bankruptcy successor to AHM. No free pass.
posted by MattD at 9:25 AM on August 3, 2007 [1 favorite]

I doubt that the borrowers get a pass, as generally you're already getting screwed with the interest, I'm sure someone will step in and assume the role of screwer.

There's a ton of money to be made in this market, just because some folks over extended themselves doesn't mean that others won't step in to make the cash.
posted by iamabot at 9:25 AM on August 3, 2007

Response by poster: iamaboat -- so when you say there's a ton of money to be made in this market, you mean by big mortgage companies buying up discounted loans, or do you mean for retail investors who could somehow profit on all these sub-prime lenders struggling?

[rant]Personally, while I understand that the sub-prime lender are potentially offering a valuable service to income-challenged folks, but I really tend to think of them as vultures, preying on weak borrowers, enabling people to borrow more money than they should and make smaller payments than they should.[/rant]
posted by indigo4963 at 9:37 AM on August 3, 2007

american home's trustee in bankruptcy will liquidate the debtor's assets for the benefit of the creditors, probably to the highest bidder, no free pass for borrowers.
posted by bruce at 9:41 AM on August 3, 2007

The loans are assets, and will be sold to pay creditors, same as any other bankruptcy situation. Hope you didn't open that champaign yet.
posted by yohko at 10:10 AM on August 3, 2007

American taxpayers will probably end up bailing out AHM or its creditors.
posted by Blazecock Pileon at 10:30 AM on August 3, 2007

Borrowers will never get a free pass. Their obligations will be sold, either to other banks or collection/repo/foreclosure agencies.
posted by ikkyu2 at 3:19 PM on August 3, 2007

Nthing that the borrowers don't get a good deal out of a lender's bankruptcy. In fact, in lawsuits alleging illegal lender tactics, it reduces the amount of money a borrower can expect to recover to close to zero.

I would bet that the mortgages that most subprime lenders originated in the past few years have already been "securitized" and sold to unwitting investors.

An unscrupulous subprime lending company can leave a lot of people unhappy -- both the borrowers whose homes end up in foreclosure and the subsequent investors who may lose some or all of their investment (and don't necessarily know the illegal and sometimes fraudulent methods used to originate those loans).
posted by ferdydurke at 4:10 PM on August 3, 2007

do you mean mortgage holders as in the people who took out the loans to buy homes, or the holders, in the technical sense - the folks who buy the mortgage securities?
posted by Salvatorparadise at 7:55 PM on August 3, 2007

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