What Happens If A Mortgage Company Collapses?
Mortgage companies fail sometimes, leaving their borrowers wondering what will happen to their homes and mortgages. Mortgage giants Countrywide and Washington Mutual collapsed under the weight of the 2008 mortgage meltdown. These lenders owned or serviced tens of billions of dollars worth of mortgage loans when they failed. The homeowners whom had mortgages with these companies waited and wondered what would happen to them, their mortgages and their homes.
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Bankruptcy
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If another lender doesn't acquire the mortgage company, then the company files for bankruptcy protection through the bankruptcy courts. The court transfers corporate responsibility out of the owner's direction and into a trustee who oversees the corporation and its assets during the proceedings. Many mortgage companies do not actually own the mortgages; they only own the servicing rights. They sell the actual mortgages to large investors but receive income for being the place the customers send their payments and call for help. A large servicing portfolio is a substantial asset for any company.
Monthly Mortgage Payments
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The company's ability to receive your payment may be affected. Document all of your attempts to make your mortgage payment. During times like this, your credit may not be hurt because your lender could not or would not receive your payment. Your loan doesn't disappear however, and neither does your obligation to pay it. Eventually someone will ask for proof you attempted to pay your mortgage. Additionally, you may need proof to correct your credit report if the company states you were late.
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Escrow Accounts
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Mortgage companies should hold escrow funds in special accounts used only for paying borrowers' escrow expenses. The doomed company should not have touched the escrow funds during its collapse. Talk with your county tax assessor's office and your hazard insurance agent if the mortgage company does not pay your escrow expenses. Communicate to avoid cancellation of your insurance or penalties on your tax bill.
Servicing Transfer
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Eventually the bankrupt mortgage lender sells the mortgages or servicing rights to another lender. Both lenders must send you paperwork outlining when the transfer takes place and who the new lender is. Federal law protects you from unfair treatment during this process. If other issues exist, talk with both lenders about the issues. Ensure the escrow funds transfer correctly and keep notes about all of your conversations. Write down whom you talked to and when. Document the conversation and keep it in case an issue arises later on.
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