What Happens to Our Homes When Mortgage Companies Fail?
This question has been bothing me for a bit. My experience is in science & engineering so I’m not too good at figuring out economic questions.
When TSHTF and the mortgage company or bank who holds your mortgage go out of business, what happens to your houre? I’m sure the mortgage will eventually get sold to someone but there will be some time of turmoil in the mean time while everyone decides what to do. Is there a worse case situation where some authority would come and close the house until something is decided? I wouldn’t think this situation would happen since millions of people would be kicked out of their homes which would cause civil unrest. The reason I’m thinking this is that it may not be important if you own your house now since under an economic callapse the house (most likely) won’t be taken away. I wanted to get some of your insights.
You mortgage company would have borrowed the money to lend to you from someone else, so the mortgage will instead belong to that person/ company. You won’t get kicked out of your house. That would destroy its value. It is just that in due course your mortgage payment will be to a different person.
It shouldn’t affect borrowers. Bankruptcy is simply a shift in capital structure as the assets are sold to competent institutions–your loan being one of those assets. They’d rather have a paying borrower on a mortgage than an undervalued house.
Of course in total TSHTF who knows what happens? Most likely the guy with the biggest gun in your neighborhood or the most corrupt team of cops in your county gets the house.
In my mind, short of a total breakdown in government, the worst that could happen (and this wouldn’t be a bad thing really) would be a case where liquidity became such an issue that the holder of your mortgage might like to have their money sooner. The same might be said in a protracted hyperinflationary environment, i.e., >100% . You really wouldn’t be legally obligated to pay the mortgage holder any faster, but to gain liquidity or stem losses, they might discount the mortgage to an extent that it might be a good deal for you to buy it back. Why would they want to keep holding a mortgage if starts looking like it will probably be a loser?
Just thinking about this, makes me wonder. If mortgage holders are illiquid and need to raise money, why aren’t they doing something like this already? Congress is talking about cram downs by courts, which would be similar, but would set a terrible precedent in respect to contract law, and even after writing it down the mortgage holder would still be facing further risk of default. But say the holder of my mortgage approached me with an offer to sell it back to me for .50 on the dollar, I just might be induced to find a way to buy it back from them.
When a mortgage lender promotes any business, there is always confusion among the borrowers. The mortgage company has a chance to recover the failure in chapter 13.