Mortgage Q&A: “What happens to my mortgage if my bank fails?”
With banks failing at a pretty steady clip (at least one every Friday since June), you may be wondering what would happen if your bank failed. And you might be getting real excited at the thought of your mortgage being instantly extinguished. Not so fast…
Let’s Start with a Bank Run
- If the bank that owns your mortgage fails
- There might be a bank run on deposits
- But don’t expect your home loan to be paid off
- Or to become due in full
For some, they already know what happens when a bank fails, especially if they had uninsured deposits and scrambled down to their local branch for an old-timey bank run.
But what about the mortgage, couldn’t that just disappear too, like your hard-earned savings? And I mean disappear in a good way…no more home loan to worry about. Instantly free and clear!
Unfortunately, no. If the bank or mortgage lender holding your mortgage fails, not much will change.
Who Actually Owns Your Home Loan?
- If your bank does fail
- You could be in for a big surprise
- Chances are they don’t actually own your loan
- It may have been transferred to a different entity months/years ago
In fact, you may be surprised to find out that the originating bank or lender (the one that took your loan application) doesn’t even hold your mortgage anymore.
That’s right; it could have been sold off to another loan servicer years ago who has been collecting payments from you ever since, in which case nothing would change.
But if the originating bank still held your mortgage at the time of failure, you would receive documentation from the new owner with instructions on how to manage it going forward, and likely an accompanying grace period.
The end result would be sending that monthly payment to a new address and having to set up your payments with the new bank.
I know, it’s not that exciting; but if your bank does fail, be sure to keep a very close eye on your mortgage payments and watch out for scammers looking to take advantage of any confusion or misinformation.
Ensure that the new owner of the mortgage is indeed the owner, and not a scam artist.