As you have probably seen in the news or experienced personally, there has been a lot of financial turmoil for the mortgage industry of late, particularly in the sub-prime market. Some experts feel this is actually a positive for the industry since most of the lenders that are having difficulty were the companies most prone to questionable lending practices.

Many of these companies were forced into bankruptcy because they were lending money to borrowers with significant credit issues and were placing them with high adjustable rates and other 'hybrid' products. These loan programs would ultimately put many borrowers in a worse situation, who would then default on their payments causing the lender extreme financial hardship. If you are one of the many thousands of homeowners who are experiencing this shake up first hand, there are some things you can do to protect yourself.

First, you should be aware that no matter what your lender may be going through, they are still obligated to maintain the original terms of your loan. In theory, this is meant to protect you the borrower, and in most cases, it does. However, there is still room for you to get caught up in the overall turmoil.

In many cases, the first call to action from the lender will be to try and sell their loan portfolio to another lender. Which means the first hint you may have that your lender is in trouble is notification of a change in servicer. Now, this doesn't mean your lender is definitely in trouble since loans are bought and sold regularly, however if you find out your lender is in trouble, you may want to take additional precautions.

The biggest impact we've seen on the consumer who finds themselves in this situation is administrative and billing errors. As you can imagine, there is a significant change in focus when a lender finds themselves in this situation and you may no longer be there first priority. There is a simple solution however that can save you from some of the nightmares we've documented first hand.

The first thing you need to do is continue to make your payments on time. You are not absolved of your financial obligation to the lender just because they may be absolving themselves of their obligations to their creditors. Your credit will be affected if you miss a payment.

The second thing you should do is to document any and all monthly payments. The last thing you want is to battle your new servicer over a payment made to your old lender who is now out of business. Trying to get proof of that payment or when it may have been sent could prove impossible. If you pay over the internet, print the receipt. If you mail in your payment, include a signed proof of receipt from the post office.

The third thing you need to consider are your escrow payments. If your taxes and insurance are included in your payment and are being held by the lender, you need to document how much has been paid to date. You don't want that money to get lost in the shuffle or have the due date of your taxes and insurance coincide with this transition. Without proper documentation, you may have to re-pay the money out of pocket until your lender sends you a refund of the escrows you have already made.

The bottom line is that there are laws in place to protect you and most bankruptcy courts have done a good job to make sure the lender sees that you are taken care of. However, as with anything, there is no guarantee you won't have difficulty, but with some simple preparation, you should be able to thwart any major problems.