How woes at WaMu affect you
Washington Mutual Inc. said Tuesday that it had raised $7 billion from private investors to bolster its capital, which has been depleted by a stream of deepening sub-prime mortgage losses.
The announcement of the deal with Fort Worth-based private equity giant TPG came as Seattle-based Washington Mutual, the country’s largest savings and loan, warned of a $1.1-billion first-quarter loss and said it would slash its dividend and close scores of mortgage offices.
Here is a look at what the changes at Washington Mutual mean for customers and investors.
Why does Washington Mutual need to raise $7 billion?
Like many other financial giants, the company has lost billions on soured sub-prime loans. The company acted to ensure that it has enough capital, or net worth, to withstand future loan losses.
My mortgage is from WaMu, and I have my checking and savings accounts there. How does this affect me?
There is no direct effect on depositors or borrowers. If anything, the capital infusion lessens the risk that Washington Mutual would need to be taken over by the government if its financial woes intensified.
Should I be worried that Washington Mutual could fail?
No, but it’s always a good idea to double-check that your accounts are fully insured by the Federal Deposit Insurance Corp., the government agency that guarantees bank deposits.
In general, accounts are covered up to $100,000 per depositor, plus up to $250,000 in retirement accounts.
“I don’t think there’s any danger of Washington Mutual going under at this point,” said Laura Bruce, a senior reporter at Bankrate.com, a consumer website. “It looks like they’ve taken a step back from the brink and that’s always a good thing. But for consumers not going over the $100,000 limit, they don’t have to worry.”
What if Washington Mutual’s condition worsens?
Some analysts think the company could burn through much of the $7 billion in new cash this year and will have to raise more. But a seasoned private-equity firm such as TPG wouldn’t be investing money if it expected that to happen.
Will Washington Mutual keep making mortgages?
Yes, but like all its rivals it has become a lot more discriminating. People with good credit generally still can get home loans, but lower-rated borrowers are being turned away.
As a result, Washington Mutual said Tuesday that it would shut its free-standing mortgage offices and stop making home loans through brokers.
Washington Mutual has lowered interest rates on my deposit account. Is there anything I can do?
Interest rates offered by nearly all banks on certificates of deposit and savings accounts have tumbled in recent months as the Federal Reserve has slashed its benchmark rate. But customers can still shop around, Bruce said.
According to Washington Mutual’s website, the company is offering a yield of 1.25% on a one-year certificate of deposit of $10,000 to $24,999.
That yield is below the national average and many banks offer higher rates, Bruce said.
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