Spurred by this thread.
Let’s say my mortgage holder goes belly-up like AMH. What happens to my, non-delinquent, loan? I presume that time will be allowed for it to be sold to some other lender, and my payments will continue as usual, just to a different address. Is this so? Is there any situation where this would NOT be the case?
Pretty much. Your mortgage is an asset, so when the lender goes belly up, the creditors will sell the loans to another lender in order to recoup their losses.
Slight hijack, but not worthy of separate thread: Can mortgage lenders REALLY sell your loan to another entity, who can change the terms like payment schedules, rates, and amounts? My grandmother keeps warning me about “having my mortgage sold” and tells me horror stories of the new guys increasing the payments a few hundred dollars and refusing prepayments. I don’t understand how that could be legal.
Your grandmother is incorrect. Your mortgage is essentially a contract with specified terms. If your loan company goes belly-up another lender buys the paper, you will continue to pay the mortgage according to the terms you originally agreed, just to the new lender.
It’s actually quite common for loans to be repackaged and sold, all while you are making payments to your original lender. Bear Stearns has taken some significant losses in a hedge fund that dabbled in repackaged sub-prime loans.
When we finished signing all the papers to close on our home loan, the lender handed us one more paper to sign, notifying us that our loan had been sold and of the address to which we would be sending our payment. So, our loan had been sold before we actually closed on it.
It’s been sold twice since and no terms have ever changed, just the payment addresses. I have always gotten an letter from my current mortgage holder announcing the change and a letter from the new mortgage holder as well.
Clearly a bankrupt lender wants to sell individual mortgages grouped into a larger portfolio, but as part of the fire sale, I have to imagine that they’re sold at some type of discount. Is it feasible, then, to contact your bankrupt mortgage broker and buy out your own contract at a significant discount?
What makes you think that thier going bankrupt has any bearing on them collecting money from you?
Last I checked, My going bankrupt doesnt prevent me collecting on the $20 that bob owes me, but has everything to do with me telling the folks I owe that I won’t be paying them. (or paying them less, or paying on different terms, it may even deal with dividing my assets up to them, in which case they effectively take bobs $20 and give it to someone else, but, Bob still owes the $20).
And I would also add that most companies like this aren’t filing chapter 7 or 11, but that whole “reorganize my debt” thing…
In short, no. They’re going to have a law firm involved and won’t talk to you. The lawyers aren’t going to want to talk about individual loans. Even more fun is trying to verify that a loan was paid off after it has been acquired through a bankruptcy or two, which was the case with the last one that landed on my desk.
Yes to the first part (which happens all the time – loans are typically pooled and securitized these days for re-sale to institutional investors), No to the second. Your mortgage is a contract and its terms cannot be changed. However it is also a transferable debt that can be passed on to another entity by the originator.
Another slight hijack not worthy of a new thread. Many people take out a mortgage with a big solid financial organization because they just feel that, well, that it’s always good to be with a big solid financial organization. When it comes to loans, however, I’ve always felt that it’s better to find the cheapest conceivable loan, to hell with the solidity of the lender. Let them go bankrupt – someone else will just inherit the contract. In fact, it’s best to beat the woods and try to find a lender who, for whatever reason, is desperate to give you good terms (maybe it’s a small town and they’re in a war to the death with another institution). Who cares if they’re about to go under? As long as you get a great deal, it won’t affect you at all if they go belly up.
For deposits and other investments, of course, I take the exact opposite view, but for loans I just want the best deal. Is there any case where this is a bad idea? Is there any situation where your mortgage lender going belly up can be bad for you? If not, why do people go with the big solid organizations, who usually charge higher interest?
I currently live in Canada, where just a few years ago, the big banks were charging a percent more than small, fly-by-night virtual banks. The gap appears to have narrowed, but I think small lesser-know financial institutions still have to significantly beat the rate of the big banks to attract borrowers. I can understand choosing CIBC or RBC for your $100,000 deposit, but why choose them over Joe’s virtual bank for your $100,000 mortgage if you can get a better deal at Joe’s?
The one advantage you get from an solvent lender over one whose solvency is questionable is that the solvent one is more likely to be around to pay damages if you happen to get defrauded in some way. Lenders transfer loans among themselves all the time and sometimes contract out servicing of loans to boot. You can’t predict where the loan will end up based on who originates it, so that’s not a good basis upon which to choose lenders.
Not really. The market for loans of this sort is pretty liquid and well-defined, so you’re not likely to get much of a deal.
If it were possible to get a great deal, it would be equally possible with loans you haven’t taken out. There’s nothing special about the loan you happen to be a signatory to.
Isn’t there a Canadian equivalent of FDIC insurance? Yeah, it’d be a pain to wait for a bailout, but if your deposit is insured and the fly-by-night has higher rates, then maybe it’s not such a bad thing.
Yeah, they’ve got that type of insurance for deposits. Man, it just never occurred to me to deposit money with a fly-by-nighter. But I guess you’re right, the insurance should cover it. Still, ING is pretty close to the best for deposits, so there’s no real need to deposit with an unknown bank. Borrow, sure, if the rates are better, but I’d still steer clear of deposits. Probably illogical, but there it is.