If Your Mortgage Lender Goes Under

What will happen to my mortgage if the holder (Countrywide) goes under?

1 Answer

Answering this question involves a little bit of background information. Mortgage companies, like Countrywide, often sell the loans they make to people like yourself -- that's the part you probably know. The part you probably don't know is that there are two "parts" of a loan that they can sell.

The part most people are familiar with is what is referred to in the industry as " servicing rights." This is what people are talking about when they get that letter in the mail from Acme Mortgage Company which says, "From now on, please mail your payments to Moneybags Mortgage," causing them to complain to their spouse, "Honey, those darned mortgage companies -- they sold our loan again!"

The other part that can be, and often is, sold, is the loan itself; that is, the right to receive the interest and principal payments from the person(s) who borrowed the money. Oftentimes, the company who made the loan and continues to collect payments sells the loan itself, but "services" it on behalf of the entity to whom it sold the loan. This practice is fairly common, with companies such as Countrywide, Wells Fargo, etc. selling their loans to Fannie Mae, Freddie Mac and other secondary market investors.

Now, to get to the heart of your question. Both the loan itself, and the servicing rights are considered assets. As a result, if your lender were to file for bankruptcy, those assets would become part of the bankruptcy estate. The bankruptcy trustee would oversee the administration of those assets until the company could be restructured or the assets were sold for the benefit of the company's creditors. If the company did not get reorganized and emerge from bankruptcy, a new company would take over the job of collecting your payments and administering the loan. It's sort of like if someone dies while being owed money. The executor would collect and hold the payments due on the loan for distribution to the deceased's heirs.

So, if the company does "go under," keep making your payments as you usually do, until you are told otherwise by a person with the authority to tell you so. Just because the company that lent you the money goes under doesn't mean that there won't be someone there to collect it for the company's successors.