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WASHINGTON - Even one collapsing bank is one too many. The takeover by federal regulators of IndyMac Bank -- the fifth to fail this year -- was unsettling for savers and investors. And the Federal Deposit Insurance Corp. has close to 100 other banks on its watch list.
FDIC head Sheila Bair has moved to reassure consumers that she doesn't see further failures of banks as large as IndyMac -- the ninth biggest U.S. mortgage lender. But not all consumers are comforted. The recent earnings reports from big banks aren't helping: Wachovia lost $8.86 billion in one quarter. It could cost taxpayers as much as $25 billion to stabilize Freddie Mac and Fannie Mae. When Citicorp reported that it only lost $2.5 billion in the same quarter, Wall Street took that as a good sign. Sheesh.
Homeowners, savers and investors shouldn't feel bad if they are confused by it all. It's obvious the experts are confused, too, or they wouldn't be buying and selling bank stocks with such ferocity on alternative weekdays.
Nonetheless, consumers shouldn't depend strictly on the banking industry and its regulators to find a way out of the current mess. They should protect themselves, and perhaps even capitalize on current events. Here's how.
-- Fix your mortgage. Strongly consider refinancing now if you have a high interest rate mortgage or a subprime loan. Rates are low. If you're been making timely payments on your loan for at least two years, you could qualify for a better loan than you received initially. And since some crooked mortgage brokers were pushing subprimes on people who qualified for better loans in the first place, you may be able to get out of that loan now. If you're behind on your payments and worried about defaulting, try your best to hang on until October, even if you have to let other bills go unpaid. That's when the new housing bill now in Congress is expected to take effect. If you need help making it that far, look for a nonprofit mortgage counselor at the Department of Housing and Urban Development website .
-- Protect your savings. Do not exceed the FDIC insurance limits in any one bank. That means one person could get coverage for as much as $100,000, plus $250,000 in a retirement account, plus an additional $100,000 in joint accounts. If you really think you need more than that in a bank, find another bank to start putting cash into once you come close to those levels. Find more details at http://www.fdic.gov/ .
-- Protect the house and mortgage you already have. Keep stellar records of the mortgage payments you do make, just in case you're making them to a bank or servicer that is getting sloppy and not recording your payments correctly. That's not likely, but it doesn't hurt to keep your own records. Save canceled checks or -- it's likely your bank isn't even sending you canceled checks anymore -- your bank statements demonstrating payments.
-- Don't count on the fat dividends that banks used to pay. Wachovia was the latest to slice its dividend; other banks have cut theirs already, or may going forward. If you depend on bank stocks to fund retirement income, spread your money into other dividend paying industries, like utilities.
-- Don't try to time or cherry pick your investments in bank stocks. They are extremely volatile now and even professional traders seem uncertain as to whether they're going to go down further or recover. As an industry, banks will certainly recover at some point going forward, and that recovery could be reflected in share prices very quickly -- so quickly, in fact, that you might miss it. So it makes sense to keep some bank shares in your portfolio. Look to keep them safely diversified in mutual funds rather than trying to choose the right bank on the right day.
-- Go house hunting, if you were thinking of doing it anyway. There are some statistical signs that the housing market will begin to recover. Right now, there are so many houses on the market, you can pick and choose what you really want, and take your time doing it. Whenever the banks and the economy recover, all the inflationary pressures are likely to result in higher mortgage rates. So, this might be a good time to get in. While you're shopping around, live as lean as possible so you can save up for a down payment. In the new mortgage banking era, you're going to need one.