What Happens to Your Mortgage if Your Bank Fails?

In the first seven months of 2023, four U.S. banks failed. This has raised concerns among homeowners about the fate of their mortgage loans. While federal insurance protects customers’ deposits up to certain amounts, what happens to the mortgage loans held by these banks? Let’s explore this scenario and provide some clarity.

Do You Have to Pay Your Mortgage if Your Bank Fails?

Yes, you must continue making mortgage payments even if the lender that originated your loan has failed. Your loan doesn’t disappear. When the Federal Deposit Insurance Corp. (FDIC) closes a bank, it notifies borrowers in writing about temporary payment arrangements. If the FDIC sells your mortgage to another lender, either the FDIC or the new owner of your loan will inform you of the transaction and provide payment instructions.

The FDIC mandates that the new owner of your loan must comply with all state and federal laws regarding ownership and servicing of your loan. They are also allowed to collect all principal, interest, and other money that’s owed. The transfer of mortgages from one lender to another typically goes smoothly.

What Happens to Your Mortgage?

When your mortgage lender goes out of business, little changes regarding your loan. The terms and conditions of the loan, such as the interest rate and payoff period, should remain the same after the loan is transferred to another financial institution. Automatic payments for your mortgage should continue as normal.

Your entire loan balance won’t be due right away, and you won’t suddenly face foreclosure—unless, of course, you’ve fallen seriously behind on your mortgage payments. If your loan is sold to another lender, you’re supposed to receive a loan ownership transfer notice within 30 days of the transfer. This notice must include the name, address, and telephone number of the loan’s new owner, the date of the transfer, and the availability of public records about the transfer.

How to Stay Current on Your Mortgage Payments

If your mortgage is being transferred from one mortgage lender to another after a bank failure, follow these tips to stay current on your mortgage payments:

• Keep making payments as instructed by the FDIC or the new owner.
• Pay attention to all correspondence you receive about the status of your mortgage.
• Reach out to the FDIC or the new loan servicer if you have questions or concerns about your mortgage or how to pay it.
• Be sure you know whether the company that services your loan is changing. If there is a new loan servicer, you may need to change how and when you make mortgage payments.

The Bottom Line

It can be unsettling if your mortgage lender goes out of business. Fortunately, federal and state laws are on your side when a bank failure happens. If your mortgage lender collapses, remember that you’re still responsible for making timely loan payments. Although your bank may have disappeared, your loan hasn’t. Throughout the process, continue to make payments on time to protect your credit score.

At O1ne Mortgage, we understand the complexities and concerns that come with mortgage loans. If you have any questions or need assistance with your mortgage, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate through any mortgage-related issues and ensure you stay on track with your payments. Trust O1ne Mortgage for all your mortgage service needs.