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Consumer Watch: Mortage holder should not feel panic

By: Ellen Phillips
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Q: Our mortgage, a fixed-rate, low-interest, long-term loan, is held by a bank now under severe crisis. What could happen if this bank fails? Is our mortgage and all its terms safe? — Adam Alarmed

A: Dear Mr. Alarmed: While I’m neither a financial analyst nor market professional, the current, economic news does seem very scary indeed.

And in a supreme effort to remain bipartisan, I’ll just state that when we crawl out of this crisis, perhaps lenders won’t be so eager (read “greedy”) to lend money to folks who can’t afford to borrow.

Too, we truly need more oversight/regulation enforcement. Yes, I realize this is a very simplistic attitude, but sometimes simple is a lot better than “more,” which has brought us to this calamity.

The bank about which you inquired is, unfortunately as of this writing, in deep trouble, as are others. While it doesn’t appear — at least for now — that Uncle Sam must also bail out these banking institutions like he did for Freddie, Fannie, and AIG, most experts agree that more stable institutions are waiting to pounce on and gobble up the ones in turmoil.

According to The Wall Street Journal, consumers can help themselves avoid some pitfalls during these uneasy times; some actions are commonsense. Stop using charge cards and cut back on restaurant meals and expensive coffees. Others may involve a bit more planning.

Of course, first and foremost is to check that all your accounts are safe in FDIC-insured banks. The Federal Deposit Insurance Corp. guarantees up to $100,000 per person per bank (plus, taxpayers pay for this “insurance” so we may as well make use of it); if you have more than this amount in one bank, then move the additional funds to another or others, depending upon how much money we’re talking about.

Additionally, be sure any brokerage accounts are federally insured. The Securities Investor Protection Corp. protects stocks and bonds held by a customer at a financially troubled brokerage firm, but it doesn’t guarantee the investments’ value.

Check your firm out at www.sipc.org. While the average consumer definitely needs to avoid more debt, if we have problems with ready cash and need funds or if our jobs look uncertain, we’re advised to, perhaps, set up a home-equity line of credit. (I discussed the difference between the latter and a home equity loan in Consumer Watch, March 22.)

The best piece of advice I can give is: Don’t panic. Don’t yank your savings out of the bank to store under the mattress; don’t rush to sell your stocks; and don’t place 100 percent faith in what every Tom, Dick, etc. says.

Ellen Phillips is a retired English teacher who has written two consumer-oriented books. Her Consumer Watch column appears on Saturdays in the Business section of the paper. An expanded version is at www.timesfreepress.com under Local Business. E-mail her at consumerwatch@timesfreepress.com

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