So Your Bank Failed, Now What?
Last week I wrote that ailing banks usually give the highest interest rates and mentioned the troubles of IndyMac. Last Friday, the FDIC has officially named IndyMac a failed bank and took control of its assets. With more than $30 billion in assets, the IndyMac Bank failure is the largest bank failure since the 1980s. So what is a customer supposed to do in such a situation?
If you have deposits under $100,000 at an FDIC insured bank and the bank fails, then you generally do not have to worry that much. In the case of IndyMac, customers were able to successfully withdraw and transfer their insured deposits today.
When you have uninsured deposits at a failed bank like this retired teacher who deposited $360,000 into IndyMac because he was attracted by the high interest rates, then the claim process may be a little bit more hairy. In the case of the IndyMac situation the FDIC is allowing a 50% advance on uninsured deposits. This means that you can withdraw 50% of the deposits beyond the $100,000 FDIC limit. The rest of the money will be paid to depositors after the FDIC liquidates a failed bank. Generally the FDIC takes its share in administration fees first, and then pays the bank's creditors, and the depositors. It is very much like dealing with a bankruptcy. The FDIC has a very detailed FAQ here about what you should do now if you have uninsured funds at IndyMac bank.
If you have a mortgage at a failed bank, you are not off the hook for your debt, but your loan terms should not change. In most cases you would receive a polite letter from the new owner or mortgage servicer informing you where to send your payments. By law, a new mortgage servicer must inform you of updated information within 15 days of a servicer change. The notice should include the address and name of the new servicer, the date the new service will begin to accept your new payments, and most importantly have a statement that says the terms of your loan are not changed. You also have a 60 day grace period after a transfer to a new servicer so the new servicer cannot charge you a late fee for sending a payment to the old company by mistake. If you do not get any notice about your loan, then you should try to find out where it is held. Also, keep records of every payment you made and keep on making payments. Even if your payments are returned as undeliverable at least you have proof that you made a good faith effort to pay for it. In the case of IndyMac, the FDIC should be sending notices to every mortgage holder soon.
Finally, here is some more information about the IndyMac Bank failure from the FDIC. The FDIC has set up a call center for consumers seeking information. There has been a total of five bank failures this year and the FDIC expects more bank failures in the next 18 months . The best thing to do is to make sure that your bank accounts are insured and be vigilant to any news about where your money is held.
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