How stable is your lender?

Jillayne Schlicke over at Rain City Guide raised an interesting question in her post MILA shuts down. After reviewing the demise of yet another subprime lender she poses the question:

I question whether or not the company had any duties to notify employees and the general public that they were running out of cash. On the one hand, the company owes duties to its shareholders and any potential buyer NOT to speak too soon about problems that may have a negative effect on the value of the company, especially if cash problems appear to be temporary. On the other hand, what about duties of good faith owed to the general public or to its employees?

Whether they have a responsibility or not to disclose their financial situation is a post for another time; but this brings up an excellent point that you, as a consumer need to research the bank your loan is going to when doing a loan in the current market. How stable is the lender you are working with to secure your financing? Most mortgage companies that are going under seem to disappear in the blink of an eye, and even the big ones pack up shop quickly. There are horror stories of banks who have committed to financing a home purchase or refinance and closing their doors right before money is expected to close escrow.

These situations can leave you with out a home or staring the prospects of starting the refinance transaction all over again. Both of these are terrible outcomes.

To protect yourself from a lender implosion try the following:

If you are working with a broker ask them which bank they are placing your loan with.
Research the company where your loan is going by Googling them, or if they are public, looking them up on Yahoo! Finance. Look for press releases or articles about them.
Check the blogosphere, search Google blogs, the Mortgage Lender Implode-O-Meter, and other sites to see if the investor is on a meltdown watch.
Inquire as to how long it will take to finance your loan. The faster the loan can be done the less exposure you have to any lender implosions.
Request that your broker place your loan with one of the big lenders. Your broker can usually choose to send your loan to Countrywide, Wells Fargo, Washington Mutual, etc. While your rate may be slightly worse it may give you the peace of mind to know that your lender isn’t going to disappear in the middle of your loan.

While it is not a common occurrence that companies meltdown in the middle of loans, it has been more of a reality lately. You can never be too careful in making your mortgage decisions; and ensuring that your lender is going to be able to fund your loan is of paramount importance.

If you have trouble locating news about your lender email me and I’ll be happy to see if I’ve heard anything positive or negative.