In the first seven months of 2023, four U.S. banks failed. This raises an important question for homeowners: what happens to your mortgage if your bank fails? Understanding the process can help you stay on top of your mortgage payments and avoid any potential pitfalls.

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

Yes, you do need to keep making mortgage payments even if the lender that originated your loan has failed. In other words, your loan doesn’t vanish. Once the Federal Deposit Insurance Corp. (FDIC) closes a bank, it notifies borrowers in writing about temporary payment arrangements. If the FDIC ends up selling 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.

What Happens to Your Mortgage?

When your mortgage lender goes out of business, little changes when it comes to 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. And at least at the outset, automatic payments for your mortgage should continue as normal.

In addition, 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 what’s known as a loan ownership transfer notice, according to the Consumer Financial Protection Bureau. This notice must be sent within 30 days of the date that the transfer takes effect and must include:

• The name, address, and telephone number of the loan’s new owner
• The date of the transfer
• 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 scary 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 in order to protect your credit score.

Contact O1ne Mortgage for Expert Mortgage Services

At O1ne Mortgage, we understand the complexities of the mortgage industry and are here to help you navigate through any challenges. Whether you need assistance with a new mortgage or have questions about your existing loan, our team of experts is ready to assist you. Call us today at 213-732-3074 for all your mortgage service needs.