Last week I wrote about the irrational market response to the rumors (now confirmed) that Bank of America was looking to purchase Countrywide Financial. With the reader's permission, I would like to share a Q & A we had via email as it raises an issue I had never thought about before. It started with:
Hey Art ~ I heard about Countrywide between some debates a few nights ago… my mortgage is actually with Countrywide. I am guessing that there is no reason to be concerned but I just thought I would ask you since you know a lot more about these things than I do. As a customer is there anything that I should watch out for?
I responded that as a customer, there is not much to worry about. Bank of America confirmed that they negotiated to purchase Countrywide but they also announced that they will operate it as a separate unit until at least 2009. I also pointed out that as the borrower; they already had everything they needed from Countrywide… their money!
Their response is what raised my eyebrows and made me realize I had not thought of everything. They responded:
I didn't figure I had to worry… I was somewhat curious about the insurance… my mortgage is set up with everything together (PMTI) and I am curious to see if Bank of America contacts my insurance and makes the changes necessary… I will keep an eye on it when the change happens.
Since Bank of America is keeping Countrywide separate, my guess is that they will keep the Countrywide name and entity too. That would mean no changes would be necessary.
This deal saves Countrywide from the threat of bankruptcy (at least for now). But it does beg another question … What happens to your escrow if your lender goes bankrupt? Are the funds you escrowed subject to the lenders creditors? My gut instinct tells me these funds are not an asset of the lender. Banks carry deposits on their balance sheets as a liability since it is your money, not theirs; but should we trust my gut?
I emailed a couple of attorneys and asked them. No attorney ever really wants to render an opinion when they are not involved in a specific case. One attorney I contacted said he would be surprised if escrow funds were not protected, but also pointed out that he had nothing to concrete base his assumption on (this question is far from his area of legal expertise). West Des Moines Business Lawyer Rush Nigut found a Federal Trade Commission fact sheet for consumers on "How to Manage Your Mortgage If Your Lender Closes or Files for Bankruptcy" which implies that escrow funds should be unaffected.
It seems like your escrow would be okay, but can anyone provide more guidance?
Is there a financial topic you have a question about? Or is there something you have always wanted to know but were afraid to ask? This is your opportunity! Send me an email and ask your question. I will publish the answer here at the blog and promise to keep your identity confidential. No cost. No obligation. No strings attached.
I just have a question about the buyout of Countrywide by Bank of America. Our mortgage is through Countrywide and I am concerned. Will we have to "requalify" for our loan with Bank of America, or will they automatically take it on? I apologize if this sounds like a stupid question, I'm only a year into my first mortgage and am not real familiar with how this might playout. Thank you for your time.
Posted by: Michael | May 06, 2008 at 02:08 PM