What If My Lender Goes BANKRUPT?
Do I still have to pay if my lender goes belly up?
Sorry, no free lunches. Especially in lending.
As buyers wait for a rate miracle, new loan applications have dropped and the mortgage industry has started seeing some lenders either close up shop or initiate layoffs. When the market was on fire, carrying a bloated loan staff was critical to managing the tsunami. Today...today is a very different market.
While no one is anticipating a second systemic 2008 meltdown, (except the 23 year-old in his mom's basement preaching real estate prophesy on Youtube) independent lenders are fragile to market shifts. They simply don't have the deep pockets of big banks.
So if your lender goes bankrupt, you're off the hook. Right? Sorry. But no.
You likely won't get any heads up that your lender is financially crippled but there are many safety nets in place to protect borrowers today. Your loan is a slice of debt the lender carries on their books so if the $-t hits the fan, they will sell off all their existing mortgages to other lenders. Your terms will not change, nor will the amortization schedule but where you send the check will. Your responsibilities stay the same as well (paying on time, paying taxes and maintaining insurance).
Who will buy your mortgage? Likely Fannie Mae or the Federal National Mortgage Association, who oversee about 62% of all US mortgages. Chances are, unless you bought a few weeks ago your loan was already sold. It's worth checking. By law, lenders must tell you within 30 days if your loan has transferred.
What if the lender fails while you're under contract and before closing?
Stressful? Yes. Doomsday? Absolutely not.
The funds you have in escrow (with an attorney) will move to a new lender (that you will select yourself). In this scenario you might get a heads-up. Most lenders will stop working loans if they're about to go under. Or at least, they should.