Comments (scroll down to add your own):

1. In the United States more than any other country, mortgages and other loans are “securitized” or sold.
   This process is in part to blame for the sub-prime mess because loan originators would write the mortgage, but rather than keep the mortgage on their books, they would sell the mortgage for a profit.
   This is a very common practive in banking, where a financial institution wants to mitigate its risks by holding a certain mortage or certain number of lesser quality mortgages by selling them off.
   Because loans are assets to the banks, deposit based institutions will often use their depositors dollars to buy these “assets” in order to make a profit.
   In simple terms ING may pay you 3.00% interest on your money and then take those deposits to buy a mortgage that pays 4.75% – profiting 1.75% (the spread) minus associated administrative costs.
   However, when these “assets” start failing, the bank is no longer earning its spread on the interest and the proverbial hits the fan!

   Comment by Tyler @ Dividendmoney — Sep 22nd 2008 @ 5:02 pm

2. Just a note: When a bank sells your mortgage, you should receive a letter from both the old AND new mortgage company, explaining the transfer.

   Never send money to a “new” lender without hearing from your current mortgage company.

   Comment by Stacey — Sep 23rd 2008 @ 9:11 am

3. Stacey: Correct. However, I’m not sure what happens in the case of a bank failure. Perhaps the old bank still sends a letter, or maybe the FDIC does it?

   Comment by nickel — Sep 23rd 2008 @ 9:13 am

4. Good info, thanks Nickel.

   Interestingly, we ended up with Washington Mutual for the reason that they did not sell their mortgages. We’ll see what happens with them in the upcoming months.

   Personally, I’ve had good luck working with their customer reps and would like to see them survive.

   Comment by Eric — Sep 23rd 2008 @ 9:24 pm

5. Don’t just get a letter from your original and new mortgage company, but call your original mortgage company and verify the information is correct. Go to the bank’s website, or call their customer service line, do not call the phone number on your letter. Not only is it easy to send a letter from a bogus bank, but it is very easy to find out who your current mortgage holder is. It is on the deed to your home. And many counties allow online access to that information, including who your current mortgage holder is.

   Thanks for bring that up. I work in fraud prevention and I can see a lot of perps ripping off innocent people like that (and I have seen a lot of scams in my time).

   Comment by Das Bear — Sep 23rd 2008 @ 11:13 pm

6. great info,it is so funny when a bank fails you still have to pay your mortgage , it is not my falt the bank fail.the bank should not be able to sell that mortgage to anybody.

   Comment by SHARKGUY — Sep 26th 2008 @ 1:08 pm

7. Very interesting article.

   @sharkguy

   I disagree, the bank has every right to transfer your mortgage.

   You took out a loan, which is an asset to the bank. If the bank is liquidated all its assets are sold off. This is perfectly fair and normal…

   Comment by Francois Viljoen — Sep 29th 2008 @ 6:14 am

8. And if they couldn’t sell your mortgage, they would sell your house. Remember, the house belongs to the bank until you pay off the mortgage.

   Comment by Das Bear — Sep 29th 2008 @ 9:11 am

9. Interesting article.

   Typical – our deposits are only guaranteed up to a certain amount anything above that and its tough luck. However our mortgages are still in existence…mmm

   Comment by Until Debt Do US Part — Sep 29th 2008 @ 3:00 pm

10. What if I offer to buy the mortgage from my bank at a reduced rate?

    Comment by Juan — Sep 30th 2008 @ 2:07 pm

11. What happens to a home equity line of credit in the case of WaMu failure? We have both our primary mortgage and a HELOC with them. Can they sell them to different parties or can they call the HELOC due since it is not a primary mortgage? We have about $15k on our line with max limit of $20k.

    Comment by Kurt — Sep 30th 2008 @ 11:08 pm

12. They can sell it. However, in your case, it may keep the name WaMu for a while longer before becoming a Chase HELOC. Chase probably will not sell it unless they are in need of cash (it would probably happen if they bought too many loans and not enough deposits from WaMu).

    Remember, as long as you make your payments on time and the value of your home holds up, your loan is a money maker for a lender. Even a bank about to fold would be foolish to call your loan when there would be lenders more than willing to buy it.

    And as for the terms of your HELOC, those will not change one bit unless you agree to the changes, or they are consistent with your original loan agreement. Chase may have a different way to calculate your interest rate, or have different minimum payment options. Chase (or another lender who may wind up with your loans) still must honor your original terms of your HELOC, and mortgage, unless you sign an addendum to your original loan agreement. Your loan agreement may actually state what happens in such a case.

    I have experience with this as I once worked for a large bank that bought up a lot of other banks.

    Comment by Das Bear — Sep 30th 2008 @ 11:29 pm

13. Because your mortgage is securitized and sold, the home note changes hands. So what happens if the note is lost (It happens far more often than you realize)?

    The answer is when the new mortgage company tries to bill you, you take them to court as an improper lien holder. If they can’t produce the note, they don’t have a valid lien on your home. Legally, you still owe the debt but if you’re facing foreclosure you don’t need to convince the mortgage company to agree to a short sell.

    Comment by Adrian — Oct 1st 2008 @ 8:04 am

14. Many people have also asked me that same question mostly because I have been in financial services for the last five years.
    Although they are also wondering what will happen with there retirement plan assets if they had it in a mutual fund or an annuity and that company goes under?
    What are you thought on this?

    Comment by Chris Holdheide — Oct 7th 2008 @ 11:03 pm

15. With mortgage companies selling home loans in blocks and one loan can be sold to a thousand different investors,who holds the deed when the original lender has no ties to the loan and a thousand peices of the loan are spread arounf the globe?

    Comment by Dave — Jan 31st 2009 @ 10:51 am

16. The bank holds the deed. In the situation where the bank sells bonds backed by the mortgage, the bank plays the role of servicer for the loan. When the bank collects your payment, they will simply forward that money to all of the bondholders. If case of foreclosure, the bank will take the house. When they sell it, the proceeds go to pay off the bondholders.

    The bank may still hold the deed, but all of the bondholders can stake a claim to any money that the bank brings in as a result of the mortgage.

    Comment by The Bear — Jan 31st 2009 @ 12:54 pm

17. If the bank really holds no interest in the loan how can they foreclose when you owe them nothing?How can they hold claim to any loss? Due to the fact the loan is owned by many holders isn’t the law that they all have to file in court to have the borrower removed? I am also seeing where the original lender who has no interest cannot locate the deeds,their is no proof of ownership. The squatters rights article a congress woman from OH had with Lou Dobbs stated home owners have the law on their side it that true. A debt is a debt and how can the loss of a peice of paper remove it? Thanks for your quick reply.

    Comment by Dave — Jan 31st 2009 @ 2:51 pm

18. What the bank does with the mortgage has nothing to do with who owns the mortgage and who has the lien on the property. What the bank does after they originate the loan is they (usually through another company, like Freddie Mac and Fannie Mae) issue bonds to the public. The payment of those bonds to the bondholders are dependant on the mortgagee making their payments. They are not dividing up the ownership of the property, they are only dividing up any income that comes from the mortgage. As a result, the bank does not have to give up their ‘ownership’ in the home.

    I doubt that would be true if the bank cannot locate the deed. Each county keeps their own records of who owns property. The paper deed can be stolen or detroyed very easily. The county will keep their own records, and those records are the final word as to who owns property if there is any question about it. If the bank loses the deed to property, they can go to the county auditor’s office and request a new deed.

    Comment by the bear — Jan 31st 2009 @ 4:57 pm

19. My mortgage is a fixed rate loan of 7% and I owe $110,000. My Home Equity line is for $200,000…rate is variable, but right now at a very low 2.24% and I owe $71,000. My available credit line is $129,000. Can I take $110,000 from my home equity line and pay off my first mortgage of $110,000? Both mortgage and credit line is with the same bank.

    Comment by Donna Lukenbill — Feb 24th 2009 @ 8:54 am

20. Regarding Donna Lukenbill’s mortgage question – I have a HELOC in Michigan where property values are falling fast. My bank just suspended all use of my HELOC due to the falling property value. They make the change usually one week before you receive the notice from them so you don’t run out and charge up a bunch of dept on the HELOC. So, be aware, this has already started happening all around the country.

    Comment by Kurt Dreher — Feb 24th 2009 @ 9:03 am

21. Yes, you are allowed to pay off a mortgage with a HELOC, regardless of who holds either loan. This assumes that the bank will let you draw on your HELOC (similar to Kurt’s situation).

    But before you move everything over to your variable rate, you do have to weigh the effects of that variable rate. What would happen if your 2.24% rate shot up to 8%? Or how about 12%. It is not likely to happen in the next few months, but a few years down the road, it could happen (I personally think we will see double digit rates in the next 3-4 years; but of course I could be wrong). In the 70s, most HELOCs would have had a rate over 20% at times. And they would have been over 10% for most of the 80s. And the that rate was 8-10% for most of the 90’s; so don’t get too used to these record low rates, they will go up eventually.

    On the other side of things, if you plan on selling the house, making extra payments on your house, or if you plan on getting a lot of it paid down over the next few years, then moving everything over to a HELOC may not be a bad idea. If you can have your mortgage paid down to $50,000 in the next 3 years, then paying a potential 12% may not sting so much.

    But of course to do that would mean that paid $131,000 over 3 years (will you have that kind of money?) And would you want to pay 12% interest on a $133,000 mortgage? (if you paid $800 towards the principle you would have a balance of $133,000 in 5 years). That would be $1,330 a month in interest alone!

    If you are paying 7% and plan on staying in the house for a while, and you do not plan on paying down a huge portion of it in the next few years, then I would suggest that you look into refincnacing your first mortgage. 30 year fixed rates are below 6% and 15 year fixed are below 5%. Locking in those low rates may be the better option.

    Comment by The Bear — Feb 24th 2009 @ 9:43 am

22. Thanks to Kurt and the Bear for your responses. I have looked into a refi…bank won’t let me refi just the first, they want me to pay off both the mortgage and the HELOC and give me a 5 1/3% fixed. Not sure if this is best case for me…

    Comment by Donna — Feb 24th 2009 @ 10:23 am

23. I would be very careful about converting your fixed rate debt into variable rate debt. Yes, the HELOC is very low right now, but will it be that way forever? Highly doubtful. As The Bear pointed out, rates are abnormally low right now.

    Comment by nickel — Feb 24th 2009 @ 10:25 am

24. My personal bank is failing. My mortgage is with another bank that draws off my personal bank to pay my mortgage. Am I in trouble here? Should I start a personal account at the mortgage bank? I know that my money is FDIC insured because I don’t have much. However, when my mortgage bank gets the willies, they double dip- drawing 2 mortgage payments at once. That I can’t afford happenning any more

    Comment by Dora Jane — Feb 28th 2009 @ 8:31 pm

25. 1st of all, what make you think your bank is failing?

    Secondly, you should call your mortgage bank and get an explanation as to why they take double payments. They are not allowed to do that unless you authorize it.

    Comment by The Bear — Feb 28th 2009 @ 10:05 pm

26. 1. legal notice pasted to ATM in the drive thru stated my bank has limited capital and more information will be given to customers at a later date.
    2. after talking to the 6th person, no one would fess up to the mistake nor would they refund. They did however, post it towards the principle

    Comment by Dora Jane — Mar 1st 2009 @ 1:11 am

27. I had a construction loan and was in the process of building my dream home. The bank in which I had my construction loan failed. The bank who took over refuses to honor the loan and has now canceled the loan. With financing so tight I can’t find another loan anywhere. The bank is threatening to foreclose if I can’t find a new loan source. How can this happen?

    Comment by Kelly McKenzie — Mar 20th 2009 @ 5:57 pm

28. I have a question. My question is this, my mortgage company went Bankrupt before I could make a monthly (August) payment. It was another month before I heard from the company (Bank of America or BOA) that purchased the mortgage. Now BOA sent an invoice for September but never sent me an invoice for August. I paid my September bill but BOA applied it to August which they have never sent me an invoice. Their debt collector department continues to call me saying I owe for August but with all the mortgage scams I refused to speak with them. I asked them to send me a August inovice but they refused to send one. What should I do?

    Comment by Vincent Johnson — Sep 29th 2009 @ 9:54 am

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