What happens after bank runs?

Question

After the recent bank runs, Bear Stearns and IndyMac Bancorp, I have been curious about what happens to the bank's outstanding loans? More particularly, to whom does a household pay the remainder of their mortgage agreement?

Answer 1

A bank run has nothing to do with where the mortgage payments go. A bank run is when all of the depositors want their money at the same time. The bank is then left without deposits. Since they lent more than they had in deposits, that is how they became insolvent.

The mortgage payments are due to whatever entity owns the loan-either the original lender, an investor who purchased the loan stream, or Freddie or Fannie- the quasi-governmental mortgage banks that buy 80% of the mortgage debt in the USA. I hope this explanation helps you!

Answer 2

When a bank, or such, declares bankruptcy, a third party will come along and purchase the outstanding loans for, I'm guessing, pennies on the dollar.  Your payments will then go to that new third party.

It sucks that the bank will be free of any of their obligations, but we still have to make good on the obligations we had to them.