A study on the U.S. banking system found nearly 190 banks are at risk of failure. Preston D. Cherry, founder and president of Concurrent Financial Planning, joined Cheddar News to explain the process if you have a mortgage with a bank that collapses.

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Stretching Your Dollar: What Bank Failures Mean for Mortgage

Time now for stretching your dollar. We all want to do it. We give you tangible tips to help you make the most of your money. Well, bank failures in the US, they're generally uncommon. At least the ones that we've seen of late 2023 has been an exception as this year's banking crisis started in early March with the failures of both a Silicon Valley bank on the west coast and signature bank on the east coast. Well, a subsequent study on the US banking system found that nearly 190 more banks are at risk of failure. So many Americans might be wondering what happens if you have a mortgage with a bank that fails. So joining me now to break it down as Preston Cherry founder and president of concurrent Financial planning. Preston, thank you for coming on the show and this is such an important topic. So how does it work if you do have a mortgage with the bank that goes under? Well, as much as we don't like bills who does, uh that mortgage still stands? I mean that mortgage is an asset on the bank's balance sheet. And so when they go under, uh, that, that asset is just going to be transferred to another bank that steps in and purchases those assets. We've seen larger banks now step in and purchase the assets of smaller banks and the mortgages are an asset and are included in that purchase. Are there any exceptions? Uh, in this case, Preston that our viewers need to know about. Uh, no, uh, not necessarily, I mean, assets are assets and I, I encourage folks that when those uh those banks fail, hopefully they do not. But larger banks will purchase those assets continue to make your payments. You will be notified more than likely via email. And then you can also reach out to your former bank's website and get, get that information as well. And how does that communication usually happen? Or at least what should consumers be prepared for pressed in if a new bank comes in scoops of those assets of the bank that went under and now technically your mortgage is with the new entity. Yes. Yes. They will give you instructions on how to log on to your new account. Give you background on your new servicer, which is your new bank and uh allow you tools to keep on paying that mortgage as much as we'd all like to. Uh, they will give you instructions on how to continue that and keep your credit and your lending history in, in good favor. Is there any way that a bank can call a loan Preston if the bank does collapse and then demand full payment of the remainder of that loan immediately. Mm Well, uh it could be a potential acceleration but uh that said uh that when you owe the debt, you still have to pay that debt in in full. So those new negotiations are going to be at the institutional level but far as your obligation to the bank, you still owe that uh that that outstanding loan. Ok. So let's talk about some tools. Um Obviously this interview hopefully will help consumers but any other sort of mortgage tools comparison websites. Uh Preston that our viewers should know about. Yes, I I would say uh going on to particularly the the federal websites for uh you, you mentioned the studies that are going on about institutions that may be at risk. So reviewing those reports are probably in in good order, seeing those reports and seeing where your bank stands and, and seeing what uh where you, where you may lie in that, in that report. What else do our viewers need to know about this process? Of course, it is kind of a tenuous time, right? With more banks looking vulnerable really by the day? Well, I I I continue to stress that, you know, assets are assets and it it is a, it is a continued obligation of, of yours. I mean, uh it's a debt to you but an asset to the bank. So uh even though the bank may go under uh the assets on the books are still attractive to people, to the banks that come in and purchase those. So continue to make your payments. Uh So you can keep your history in good order. Yeah. Will it impact your history at all? Your credit history? Any sort of unfortunate negative impact it could have on the consumer or the debtor, even if it's not their fault, right? If a bank actually collapses, uh no, not more than likely, not, more than likely not. If you're making your payments on time and making good faith effort in order to uh make those payments, then if there is a uh missed payment, that is not a fault of yours more than likely that's not going to affect you. So just continue to uh look out for your emails and then reach out to your former institutions website to continue making those payments. All right. So you're still on the hook to you still on the hook. Preston, New Cherry founder and president of Concurrent Financial Planning. Preston. Thank you.