Question of the Day: Can my mortgage be called due if the company gets in trouble?

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Five gold stars to Sandy, one of my clients who I helped with financing a few years ago when they bought their dream home in Eastern Washington, for asking me this regarding the current market:

“I was wondering if there are issues that could arise if this credit crisis continues in a downward spiral? The market hasn’t been doing well in the past week with concerns about the “credit crisis”.

Is there any reason for concern that we could have our home loan called in early if our mortgage company gets into trouble? (We are with CitiMortgage right now). Are there other issues that we should be thinking about if this causes a ripple affect to other areas of the economy?”

I’m going to address the “bold issue” first.   Your loan will not be called due if the company you’re making mortgage payments to gets into trouble.   The mortgage company you’re making payments to does not hold your mortgage.   They are actually just receiving and processing the payments.   They receive a small percentage of your payment for “servicing” the loan.  Your mortgage has been bundled with other mortgages and has been sold to investors as mortgage backed securities (bonds).  If something were to happen to the mortgage company you make payments to, you would just be sending your mortgage payment to someone else.

Continue to make your mortgage payments (including your property taxes and insurance) on time and your mortgage will not be called due early.

I’ll address Sandy’s other excellent questions in a follow up post.

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