Mortgage Q&A: “What happens to my mortgage if my bank fails?”
It’s happening again – banks have failed, the most recent being Signature Bank and Silicon Valley Bank being the third and second largest failures respectively.
Washington Mutual’s mortgage failure in 2008 remains the largest bank failure in U.S. history. But will it keep the crown?
Before this unexpected latest story The bank has not failed for nearly 900 days, which is doing well. (no pun intended)
Back in 2009-2010, the bank suffered quite consistent failures. (at least one every week At that time, many homeowners were pondering what would happen if their banks failed.
And some people might get excited at the thought of their mortgages going off suddenly. After all, everyone seems to have been bailed out. Why not landlord?
Not so fast… it doesn’t work that way. It must be good right?
It started with Bank Run.
- If the bank that owns/holds your mortgage fails (or at risk of failure)
- Banks may process deposits and eventually the FDIC will take over.
- But don’t expect your home loan to be paid off at this stage.
- or for all loan balances to be paid immediately
Some people already know what happens when banks fail. Especially if they have unsecured deposits and scramble to go to a local branch to run a traditional bank.
It’s a critical mode and it’s very bad news. and may cause the money to disappear as well Although this round the government stepped in and promised not to lose money to depositors.
But outstanding loans such as home loans will disappear as well or not The same goes for your hard-earned savings. And get well soon… Don’t worry about getting a home anymore. Free and clear now!
Back in 2009/2010, many homeowners were under water. It means they owe their assets more than their face value. So the thought of paying off the mortgage is very tempting.
Today, most homeowners have a good stake. But that doesn’t matter. The answer is still the same.
If the bank or mortgage lender holding your mortgage fails Not much will change.
All loan balances are not due immediately. You won’t get a free house. And you’ll be seized too. Oh, and your mortgage rate won’t go down to zero.
All loan terms, including the loan term, will not change. It will be business as usual, even if your mortgage lender or bank is no longer in business.
Who owns your home loan?
- If your bank fails You might find a big surprise.
- Chances are they don’t own your home loan.
- It may have been transferred to another legal entity several months/years ago.
- Pay attention to your loan provider. Not the original bank/lender
At this point, you should be aware that you are still required to pay back the mortgage on terms agreed upon.
This means outstanding loan balance, mortgage rate, loan term. monthly payment, etc.
Perhaps something more interesting is You may be surprised to find out that the bank or lender of origin (The bank that accepted your loan application and gave you the loan) no longer holds your mortgage.
That’s right; It may have been sold to another credit provider years ago that has been charging you ever since.
In this case, absolutely nothing will change due to bank failure. You must continue to pay the credit provider that is not involved in the failure.
But what if the bank still foreclosed on your mortgage at the time of failure? You will receive documents from the new owner.
It will include advice on how to manage your loan in the future. and there may be a grace period accordingly
The end result is sending your monthly mortgage payments to another company.
In other words, sign up for an account at the new bank/provider’s website. and enter your payment information to ensure that payments are routed correctly.
I know it’s not that exciting. But what if your bank fails? Be sure to keep a close eye on your mortgage payments. And be wary of scammers who want to take advantage of confusion or misinformation.
Make sure the new mortgage owner is actually the owner, not a scammer. Make a call if necessary. check documents and continue to pay off your mortgage debt.
Read more: Mortgage Rates vs. Bank Failures
