FDIC

• If a bank becomes bankrupt or fails, the Federal Deposit Insurance Corporation (FDIC) steps in quickly and takes control of the bank. The FDIC will arrange a sale of the institution to a healthy bank or financial services company, and the FDIC runs the day-to-day operations of the failed bank until the sale occurs. Bank clients with loans or mortgages still owe the debt, which eventually transfers to a new company for service. The client will continue to make mortgage payments as usual until notice is received from the FDIC with new information on where to make payments.
  
  

Loan in Default

• If a bank customer has a mortgage that is in default when the bank fails or becomes bankrupt, the FDIC will offset the loan against any funds the borrower has on deposit with the failed bank prior to paying deposit insurance. Any amount still due after the offset will be sold to a new institution for servicing under FDIC rules.
  
  

Current Loan

• The obligation for a borrower to repay a mortgage does not change because of institution failure or bankruptcy. When the loan sells to a new servicing bank, the FDIC will send notice to the borrower with information on the new loan servicer. The new loan servicer will also contact the borrower with information on where to send mortgage payments. The original terms of the mortgage remain, and the borrower cannot miss any payments as a result of the bank failure, as the original amortization schedule for the mortgage still applies.
  
  

Loan and Sale Information

• The FDIC has an extensive website that contains notices and specific information regarding bankrupt or failed banks. There are notices regarding the sale of loans, announcements to other FDIC institutions and detailed information on how the sale of failed bank assets occurs (see Resources).