Or, what happens to any loans owned by any lender for that matter? (I’m thinking of all the companies that made a lot of really stupid loans).
Does Countrywide start selling off all its loans to competitors? And if so, can the terms of the loans change at all (meaning the borrowers could get screwed by a change in the rate), or does the rate stay the same and the purchaser take the risk?
I guess it is not super feasible, as people have been talking about Countrywide difficulties since '06 now.
I’m pretty sure the loans just dissolve if CFC goes under.
Technically it really would not make much difference to the consumer (borrower in this case) except for a new coupon book with a new payment address. Mortgages just don’t ‘disolve’ because the current servicer goes under and if Countrywide is forced into bankruptcy and has to liquidate, then the mortgages will either be sold to other mortgage servicers or one of the government alphabet groups will deal with them. Regardless of the outcome, the new servicer would be required to provide for and service the loan under the same terms as the orginal lender.
Does Countrywide start selling off all its loans to competitors?
Countrywide and most direct lenders already sell off the loans, that is why the US sub-prime problem affects the whole world which bought those loans. It does retain most of the loan servicing, collecting the monthly payments, etc.
And if so, can the terms of the loans change at all (meaning the borrowers could get screwed by a change in the rate), or does the rate stay the same and the purchaser take the risk?
The terms stay the same. That is why some of the proposed solutions to the sub-prime problem will not work – can’t change the rate up or down. The buyer DOES take the risk, that is why the value of the loan is discounted in the secondary market, to reflect the risk that the borrower will default. The loans are typically bundled into groups with a risk rating and sold accordingly. The more risk, the less buyers are willing to pay for the bundle, the difference is the “crisis.” In effect, less money to then re-loan to somebody else.
Countrywide is a buyer and seller of loans. If they BK, then some else will service the loan. That is what happened to my first loan. This current loan was done through E-Loan, serviced for two months by them, and then bought by Countrywide.
The OCC doesn’t let banks go bust. They’ll be put under a consent decree and be heavily regulated on what if any loans they can issue and a turn around team will come in to get the bank back on its feet until such time that they become viable for another large financial institution to pick up at a fire sale price.
The real concern is with the people who have applied for and been approved, but have not yet drawn funding or closed. If the lender goes under, the subsequent approval is worthless.
As others have stated, all of these loans are packaged and sold/traded. There’s a lot of firms on the street (ie Citadel) who are taking the risk and buying these traunches at ridiculous discounts to take on the risk and and provide liquidity for the lenders in need.
It means I don’t have to get five thousand pieces of junk mail from those jag-offs about refinancing my house each week!
Jason