If Your Mortgage Lender Goes Insolvent, Don’t Panic…
The topsy-turvy condition of the financial market, compels a number of debtors to worry about their future and wonder what will exactly happen to them if the mortgage lenders goes bankrupt? Will your loan terms drastically change? Or you have to renegotiate the loan with a new lender? To most of the consumers the secondary mortgage market appears to be a mystery and they don’t know the right answers of all the above questions. Read on to know more in this regard and take a look at the changes you might encounter when the mortgage lender is forced to be declared bankrupt.
After signing the mortgage deal
- No matter if you have done your mortgage or mortgage refinance with Wells Fargo or Bank of America the lenders can sell the loan to investors on the secondary mortgage market. The moment the borrower signs his or her loan documents he has no role to play in this regard.
When mortgages get sold
- Once the mortgages are sold, fairly they’re divided into two major parts, the first part is the actual mortgage itself and the second part which is sold is the servicing rights. The first portion is attached with a bunch of other mortgages and sold to an investor in the form of bonds or some kind of investment vehicle. Once you sold the first portion of the mortgage the payment you make to the company servicing your loan, small percentage of your payment is accepted by the company and the rest of it is paid to the investor. The second portion of the mortgage is paid to the company which will hold the servicing rights to your mortgage and handle all the administrative tasks that come with servicing your loan, like sending out statements, collecting past due payments and so on.
When the Original Lender Goes Bankrupt?
When your original lender file for bankruptcy after selling both the mortgage and its servicing rights, you remain no more obligated to pay them but if they keep the servicing rights and sell off just the mortgage as an investment vehicle, they will be compelled to liquidate its assets, which means they have to sell the servicing rights to someone else. Once the servicing rights are sold, the change you’ll first notice is that the company you are currently paying has been changed.
What happens if the Servicing Company declares bankruptcy?
If eventually the company which presently holding the servicing rights goes bankrupt? Same procedure will be repeated. The company will be forced to sell the mortgage servicing rights at a discount to another company or investor and you’ll start paying to yet another new company.
What happens if finally the investor declares Bankruptcy?
Have you ever given a thought what will be the consequences if the investor who bought the actual mortgages itself, as some sort of investment vehicle, goes bankrupt? Don’t worry most probably you won’t even know about it. No matter what happens to the mortgage, the company might sell it to some other company or might lose it in a lawsuit, either way; your loan terms will remain unaffected.
To conclude, no matter what happens, no matter how many times your loan is sold or how many companies holding it go bankrupt, the terms of your mortgage will never be changed or modified in any way.
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