Comments on: Wamu failure: Action items?

Question: Wamu failure: Action items?

everichon — Mon, 15 Sep 2008 08:04:55 -0800

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).

By: valkyryn

valkyryn — Mon, 15 Sep 2008 08:10:16 -0800

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.

By: mzurer

mzurer — Mon, 15 Sep 2008 08:11:05 -0800

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.

By: burnmp3s

burnmp3s — Mon, 15 Sep 2008 08:21:10 -0800

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.

By: everichon

everichon — Mon, 15 Sep 2008 08:38:17 -0800

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.

By: mkultra

mkultra — Mon, 15 Sep 2008 08:55:11 -0800

I asked a similar question recently.

By: yoyo_nyc

yoyo_nyc — Mon, 15 Sep 2008 08:58:46 -0800

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.

By: troy

troy — Mon, 15 Sep 2008 09:14:14 -0800

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.

By: troy

troy — Mon, 15 Sep 2008 09:17:02 -0800

^ 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.

By: Class Goat

Class Goat — Mon, 15 Sep 2008 09:37:58 -0800

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.

By: cass

cass — Mon, 15 Sep 2008 09:47:30 -0800

Thank you for asking this question. My mortgage is with WAMU, and also a credit card. Now I know not to panic. :)

By: bizwank

bizwank — Mon, 15 Sep 2008 10:53:20 -0800

So how long does it usually take the FDIC to get you your money? I can't buy groceries with insurance...

By: Class Goat

Class Goat — Mon, 15 Sep 2008 11:19:42 -0800

The FDIC moves very fast; usually there's no disruption at all in customer access.

By: scody

scody — Mon, 15 Sep 2008 13:56:22 -0800

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.

By: mhum

mhum — Mon, 15 Sep 2008 14:01:02 -0800

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.

By: trieu

trieu — Wed, 17 Sep 2008 09:45:57 -0800

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.)

By: cc5alive

cc5alive — Wed, 01 Oct 2008 13:58:11 -0800

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.