If my mortgage lender goes bankrupt, do I still have to pay my mortgage?

By Casey Murphy AAA
A:

Yes, if your mortgage lender goes bankrupt you do still need to pay your mortgage obligation. Sorry to disappoint, but there is no free lunch in this situation. In the event that your mortgage lender goes under, the company will normally sell all existing mortgages to other lenders.

In most cases, the terms of your mortgage agreement will not change. (Be sure to check your mortgage agreement for "sale and assignment" terms.) The only difference is that the new company is will assume responsibility for receiving payments and for servicing the loan rather than the company you originally dealt with. Together, the Federal National Mortgage Association (Fannie Mae, or FNMA) and the Federal Home Loan Mortgage Corp (Freddie Mac, or FHLMC) purchase or guarantee 40-60% of all mortgages originating in the United States. (To learn more on this subject, see Behind The Scenes of Your Mortgage.)

Also, we must note that it is normal business practice for some lenders to sell their mortgages to other companies in situations outside of financial distress. You can check this by reviewing your original loan agreement. Within your documentation, you'll find a section that defines the responsibilities of each party in the event that the mortgage is sold or assigned to another company.

For a one-stop shop on subprime mortgages and the subprime meltdown, check out the Subprime Mortgages Feature.

RELATED FAQS

  1. What are the implications of a low Federal Funds Rate?

    Find out what a low federal funds rate means for the economy. Discover the effects of monetary policy and how it can impact ...
  2. Does the bank set up an escrow account for the buyer and seller in a home sale?

    Learn about the process of escrow and who is responsible for setting up escrow accounts for the buyer and seller in the purchase ...
  3. How does the bank profit off of escrow accounts?

    Discover the truth behind escrow accounts and the bank's profits. Are these accounts worthwhile or just another way for the ...
  4. Who manages an escrow account?

    Managing an escrow account is a job for a trusted and experienced service provider. Discover the best personal finance solutions ...
RELATED TERMS
  1. Total Annual Loan Cost (TALC)

    The projected total cost that a reverse mortgage holder should ...
  2. Asset Liquidation Agreement (ALA)

    A contract between the Federal Deposit Insurance Corporation ...
  3. Capital Loss Coverage Ratio

    The difference between an asset’s book value and the amount received ...
  4. Gross Cash Recovery (GCR)

    The gross cash colloctions expected over the remaining life of ...
  5. Initial Targeted Cash Value

    The gross amount of collections expected to be obtained through ...
  6. Liquidation Differential

    The loss in value of an asset after it has been placed in receivership ...

You May Also Like

Related Articles
  1. Stock Analysis

    Can American Capital Agency Maintain ...

  2. Stock Analysis

    How Two Harbors' Derivatives Work?

  3. Stock Analysis

    How Chimera Investment Bear The Brunt ...

  4. Stock Analysis

    How Are Interest Rates Affecting Annaly ...

  5. Credit & Loans

    Which Is One Of The Nation’s Safest ...

Trading Center