Wamu failure: Action items?

September 15, 2008 8:04 AM

We have some money in a Wamu checking account, and an equity loan. Since the word is that Wamu is teetering, what should we expect to happen to the checking account money and the equity loan?

Specifically:

* If they get bought up, will we lose anything?
* If they simply fail, will we lose anything?
* Does it make sense to yank our checking account?
* What happens to your loan when your lender folds? (I know you don't get off the hook, I just want to know if there are action items).

posted by everichon to work & money (16 comments total)

From your perspective, not very much. Your checking account is insured by the FDIC, and if your bank suffers any adverse corporate reorganization, your account is protected. If you need to do anything as a result of corporate events, they'll let you know.

Your home equity loan may well wind up being purchased by someone else. The terms won't change much--if at all--but you may have to send your money to someone else. I wouldn't bet on being able to tap into more of your home equity though: money is tight, and a new creditor may simply buy up the existing debt without offering any further credit.

But do not yank your checking account. That's what causes runs on banks. The FDIC works. You may want to get a couple-few hundred bucks of cash should your money be inaccessible for a few days, but though inconvenient, it won't actually cost you anything.
posted by valkyryn at 8:10 AM on September 15, 2008

I n ther worst case, of total failure: If the checking account is less than $100,000, there is no way you will lose money, as the FDIC will cover it. The loan will be bought by someone who will have to abide by the contract you signed with WAMU.
posted by mzurer at 8:11 AM on September 15, 2008

Does it make sense to yank our checking account?

No. The whole point of the FDIC insurance that protects your funds at WaMu (up to $100,000 per depositor) is to prevent bank runs when rumors of bank failures start going around. The FDIC even makes sure that bank failures are announced at the end of a week, so that any transition needed can happen in time for Monday.

What happens to your loan when your lender folds? (I know you don't get off the hook, I just want to know if there are action items).

Another company will buy your loan and you will pay them instead (with the same terms as your original loan). It depends on your loan contract but there is probably a clause that says that they can sell the loan to another company at any time.
posted by burnmp3s at 8:21 AM on September 15, 2008

Thanks all. I am marking burnmp3s answer as best, you are all saying the same thing-- I just want the green checkmark of answeredness to appear.
posted by everichon at 8:38 AM on September 15, 2008

I asked a similar question recently.
posted by mkultra at 8:55 AM on September 15, 2008

No. The whole point of the FDIC insurance that protects your funds at WaMu

Well, insurances insure "risks". If the losses go far beyond what is reasonably expected, the insurance will just collapse. I guess WaMu won't be a problem for FDIC but if more banks would collapse it will become a problem.
posted by yoyo_nyc at 8:58 AM on September 15, 2008

I guess WaMu won't be a problem for FDIC but if more banks would collapse it will become a problem.

If the FDIC runs out of cash, they can & will print more.

And Wamu could very well be a problem for the FDIC, with its proclivity for making its "pick-a-payment" suicide loans and paying dividends out of the capitalized interest therefrom.
posted by troy at 9:14 AM on September 15, 2008

^ to answer the question, I'd open a 2nd free checking account somewhere and get that warmed up. Your money is safe, but Wamu itself may become a small part of BofA or Wells Fargo sooner rather than later.
posted by troy at 9:17 AM on September 15, 2008

If the FDIC runs out of cash, they can & will print more.

The "Federal Deposit Insurance Corporation" is not the "Federal Reserve". FDIC doesn't get to print money. However, if FDIC does run out of money, Congress will pony up more. That was what happened with the FSLIC during the Saving and Loan meltdown.
posted by Class Goat at 9:37 AM on September 15, 2008

Thank you for asking this question. My mortgage is with WAMU, and also a credit card. Now I know not to panic. :)
posted by cass at 9:47 AM on September 15, 2008

So how long does it usually take the FDIC to get you your money? I can't buy groceries with insurance...
posted by bizwank at 10:53 AM on September 15, 2008

The FDIC moves very fast; usually there's no disruption at all in customer access.
posted by Class Goat at 11:19 AM on September 15, 2008

If the FDIC runs out of cash, they can & will print more.

Two points:

1) The FDIC doesn't run the printing presses.

2) "Printing more money" in times of economic distress doesn't actually, you know, ease economic distress.
posted by scody at 1:56 PM on September 15, 2008

To get a feel for how fast the FDIC moves, see this news article. Long story short: the FDIC swoops into a failing bank on Friday afternoon, spends all weekend getting things in order, and the bank reopens under a new owner on Monday morning.
posted by mhum at 2:01 PM on September 15, 2008

everichon -- If you think you might need the cash at any given time, you should pull your account. The FDIC will try to get the money back to you "as soon as possible," but there's no actual guarantee about the timeframe.

See this from the FDIC FAQ:

If a bank fails, what is the timeframe for payout of the funds that are insured if the bank cannot be acquired by another financial institution?

Federal law requires the FDIC to make payments of insured deposits "as soon as possible" upon the failure of an insured institution. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC's goal to make deposit insurance payments within one business day of the failure of the insured institution. Typically, a bank that has failed will be closed on a Friday. The FDIC will then work the weekend to complete deposit insurance determinations for most deposits and be prepared on Monday to either transfer the insured portion of a deposit to another FDIC insured institution or provide deposit insurance payment checks. (Note: Some deposits that require supplemental documentation from the depositors, such as accounts linked to a living trust agreement or funds placed by a deposit broker, may take a little longer. The timing of the completion of the deposit insurance determination is based solely on the depositor providing the documentation needed by the FDIC to determine insurance coverage.)
posted by trieu at 9:45 AM on September 17, 2008

There's lots of talk right now about increasing the amount that the FDIC insures to $250,000. That won't affect most of us, but you are federally guaranteed not to lose that amount of money if the bank fails.
posted by cc5alive at 1:58 PM on October 1, 2008