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…in escrow for taxes and ins?
My mortgage is held by Countrywide home loans. They currently collect a monthly sum that they are supposed to use to pay my homeowners insurance and property taxes at the end of the year. The media has been suggesting that they might go bankrupt. What would be the consequences to people who have loans with Countrywide if they do? Would I lose what is in my escrow account?

3 Thoughts on If the company that owns my mortgage goes bankrupt, will I lose the money they were keeping…?
  1. Reply
    June 7, 2011 at 2:38 am

    The money held in escrow for the payment of insurance and taxes by your mortgage company isn’t theirs to spend. Legally, it belongs to you and is being held in their trust.

    Typically, when a mortgage company is in trouble, they will sell off loans. They’ll sell the servicing of the loans they’re carrying to a more solvent company. Escrow funds will transfer with the sale of the loan, and all that changes for the borrower is the address where you send your payment.

    However, sad to say, what happends legally and what happens in reality are sometimes two different things. If the loan servicer does mis-appropriate your escrow funds, your only recourse may be to go to court and try to get them back.

  2. Reply
    June 7, 2011 at 2:43 am

    I have a Countrywide Mortgage as well… No… not under the law… That money is supposed to be in an account from which they will keep the interest, and pay the home-owner’s insurance premium…. This is not their money but ours and I have not heard of any recent Mortgage company that went under, being reported for hanky panky in the escrow accounts… Not to say it can’t totally happen the industry is so regulated and watched, But highly unlikely… What happens when a mortgage company is bought out is the company that buys the other, buy their paper, (mortgage) assumes responsibility for their bills, and takes control of their escrow… Recent news reports in the New York Times says that Bank of America just gave Countrywide a massive loan so that they can continue to operate until the housing / mortgage market starts borrowing again… Which ain’t likely to happen real fast as there is a general nationwide glut of empty new and used homes on the market and should be for some time… The 90’s are over… We had an unbelievable long long run of new building permits for nearly three decades in the Atlanta Market… I have never seen it go more that 8-9 years before, but it started in the early 1990 and ran through the Olympics, which we expected, but did not stop until today… Now you can’t give away a home… Metaphorology speaking…

    Let Amazon know if this was a great or lame answer and vote.

  3. Reply
    June 7, 2011 at 3:16 am

    Update: Countrywide CEO Sold 40M Shares in 2007. Today Countrywide said it borrowed $ 11.5 billion from a group of 40 banks to fund loans.

    The inevitable happened today. Shares of Countrywide, the largest lender in the United States took a relatively large tumble after an analyst downgrade and fresh bankruptcy fears.

    Early this morning, Countrywide was downgraded by a Merrill analyst who felt the lender could be in a situation similar to that of Thornburg Mortgage, which received five analyst downgrades a day prior.

    While I do feel Countrywide is in serious trouble, I don’t think bankruptcy is likely.

    As I mentioned in a previous post, Countrywide is facing mounting liquidity issues as it continues to struggle selling its growing stockpile of loans on the secondary market.

    But Merrill Lynch & Co. analyst Kenneth Bruce took things a step further saying, “If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.”

    Sure it’s possible, anything is possible right? But is it probable?

    He also said, “If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency.”

    So basically, in so many words, if the financial markets completely collapse and Countrywide runs out of money, the company has a chance of going bankrupt.

    Not exactly groundbreaking news, and that’s why I brought this up a week ago, knowing that Countrywide wasn’t exempt from the woes felt by every other lender in the industry.

    And believe me, no company is exempt, especially the top loan originator in the United States in terms of volume over the last six months.

    Countrywide doubled the volume output of their nearest competitor over the last six months, so yes, there is a lot of risk on the shoulders of this lender in the current lending environment.

    But to say they may go bankrupt seems like we’re fast forwarding a bit.

    Here’s what I think will happen. I don’t think Countrywide will go bankrupt.

    I think Countrywide will dissolve their correspondent lending division as well as their wholesale division to stay afloat.

    Both of these units are higher-risk than their retail lending arm because they involve mortgage brokers and other wholesale mortgage companies.

    And quality control, underwriting standards, and efficiency are all undermined when you deal outside your own roof, so it’s just too much of a liability to keep them open (plus they don’t have enough to keep them open).

    I think once they free up these positions they will have increased liquidity to manage the rest of their portfolio and their existing day-to-day obligations, and at that point, may be a potential takeover candidate for Bank of America.

    So before you jump on the bankruptcy train, look for Countrywide to wind down some of their departments, namely wholesale and correspondent lending.

    Update: I’ve been told that Countrywide changed their stated income guidelines, and many near-funded loans will need to be sent back into underwriting as full doc loans.

    Shares of Countrywide ended the day down $ 2.34 to $ 18.95, a 10.99% drop in trading Thursday.

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