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If your mortgage lender goes under...

More and more mortgage companies are closing shop as the subprime loan saga continues. Here's what to do if yours shuts down.

By Gerri Willis, CNN

NEW YORK ( -- American Home Mortgage filed for Chapter 11 bankruptcy protection this week. Mortgage banking company Homebanc announced it will shutter its doors. Other mortgage lenders are also sending out distress signals. Here's what you need to know if your mortgage lender goes out of business.

1: Keep making your payments

Regardless of what kind of trouble the mortgage company may be in, you still need to send in your payments on time, says Greg McBride of

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Remember, your payments are considered an asset to the company. If a lender declares bankruptcy, those assets will just be sold to another lender.

In most cases, government-sponsored enterprises like Fannie Mae (Charts), Freddie Mac (Charts, Fortune 500) or Ginnie Mae will handle the transfer. But rest assured, there will be someone who wants to get your monthly check.

2: Know Your Rights

The terms of your loan should always stay the same, no matter who holds your loan. It's important that you thoroughly review the details of your mortgage agreement. The interest rate and the type of loan you get should not change. If your lender does sell your mortgage, you should receive a letter from the company within 15 days that outlines the new mailing address and payment deadline.

You should also be given a toll-free telephone number that you can call if you have any questions. You must get a grace period of 60 days to get your payments to the right place on time. If you have any complaints or issues, write a letter to your lender. The company is required to respond within two months of getting your letter.

3: Get satisfaction

If you have paid off your loan in full, and you want a mortgage satisfaction documents from the company when it's no longer in business, go to your State Attorney General's office.

There you can find out the status of the company says Bill Glavin of the Department of Housing and Urban Development. You should be able to find out who you can contact.

4: Negotiation will still be hard

A servicer - the company you make your monthly check out to - may not think it's worth its while to negotiate with homeowners to lower monthly payments.

Some servicers have to front money to the loan holders if this happens, according to law professor Patricia McCoy. Plus, in many other cases, there are limits to how much interest and principle can be forgiven.

In some cases servicers can negotiate payments on only 5 percent of loans. The bottom line here is - no matter who you make your monthly check out to - get on the phone if you're having trouble making payments. The sooner you bring attention to the problem, the better off you'll be. Top of page

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