The bigger they are, the harder they fall. And the massive bank failures taking place in the U.S. have investors scrambling and consumers wondering. Customers of banks involved in failures, mergers, and takeovers may need to take some actions to fully protect themselves in the aftermath of their bank's demise.

Mortgage Borrowers: Don't Get Scammed

If your mortgage lender seems to be in the news every day, it might be a good idea to call the servicing department or check its Web site. See how expected changes will affect you as a customer. What does it mean to you if you have a mortgage with a lender that is in trouble? According to federal law, it means that your loan terms don't change, regardless of who is servicing your loan (collecting your payments). You continue to pay your mortgage every month as usual.

However, if another lender takes over, you will want to make sure that your payments are being credited to your account correctly--when a new company acquires your home loan, the transition doesn't always go smoothly and mistakes can happen. You will also want to verify that your taxes and insurance are being paid by your lender if these amounts are included in your mortgage payment (impounded).

Even if your bank is taken over or goes belly-up, keep sending your payments to the same address until you get TWO notices (also called transfer letters). The first will be from your current lender/servicer and the next will be from the bank taking over your loan. BEWARE OF SCAMS. The widely-publicized failures and buyouts have caused some lowlifes to take advantage of unsuspecting homeowners. Scammers may send notices telling you to make your check out to a new lender and send it to a different address--and you might find yourself financing some creep's retirement in the Caymans.

Mortgage Shoppers: Do You Still Have a Deal?

If you're shopping for a home and have been pre-approved for a mortgage loan with a troubled lender, you need to make a fast phone call. If you are dealing with a mortgage broker, ask what he or she knows about the lender's situation, determine if your mortgage pre-approval is still in force, and make sure the loan product you are approved for is still available. Lenders' programs are subject to change without notice and products that were standard offerings of one bank may not be offered by the one taking over. Your broker should hit the ground running and arrange alternative financing in case your lender can't close the deal when you're ready.

If you are working directly with a troubled bank and have a property in escrow, ask your loan officer to make sure that you can still close on time. If he or she can't make this guaranty, preferably in writing, it's time to find another lender before a last-minute disappointment derails your home purchase.

What about banking customers of failed institutions like Wachovia and Washington Mutual? They are expected to experience little disruption of services--customers' debit cards will continue to function, loans will not change, and all accounts will remain the same according to bank officials. The only caveat: If you have deposits at two merging banks (such as Wachovia and Citigroup), and your combined balances exceed $100,000, anything over $100,000 will not be FDIC-insured. In that case you have six months to spread your money around to other banks, with no more than $100,000 at any one institution. Then you can be certain that all your funds will continue to be FDIC-insured.

While the buyouts, bailouts, and mergers of large banks impact their employees and stockholders significantly, the effect on customers should be minimal. A little diligence on your part should be enough to ensure that your home and your money remain safe.

Sources

Blueridge.net

Federal Trade Commission

About the Author:

Gina Pogol writes for an online media company and specializes in mortgage and finance issues. Her career has included mortgage lending, tax accounting, and working as a systems consultant for Experian. She has a BS in Financial Management from the University of Nevada.