Washington Mutual Collapse – What It Means to WaMu Small Business Customers

Yesterday, September 25, 2008, The Federal government took over the largest and oldest bank to fail ever. Seattle based Washington Mutual (WaMu) had assets of $307 billion in assets. Immediately after taking over the bank, government regulators sold the deposit assets of the bank to JP Morgan Chase. Additionally, Chase agreed to absorb $31 billion in WaMu mortgage and credit card losses.

Because of the manner in which this takeover/sale of assets took place; deposit customers of WaMu are not at risk for deposits in excess of $100,000, which are the FDIC’s limits on deposit insurance. The FDIC has established a website for depositors providing detailed information and assurance that none of their deposits will be lost. There was concern about WaMu’s failure causing the FDIC to borrow from the U.S. Treasury in order to cover its obligations, but since the deposits were sold, the FDIC did not have draw from its insurance funds.

Sadly, if you are a small business loan customer of WaMu, your loan has just become much more difficult to deal with. Your rates and terms will remain the same, but servicing of your loan will now be in limbo for several weeks or months as records are moved to Chase. Should you need to speak with a loan officer about any modifications to your loan or need a pledged business asset released or subordinated, this task has just gotten much more difficult. Now you will have to deal with an overworked Chase employee who has no personal interest in responding to your request in a timely manner or with concern for your business needs that generated the request.

If your WaMu business loan is also an SBA loan, the complexity of the loan servicing will be much worse than if your loan is not guaranteed as both Chase and the SBA will need to be in agreement to your request. Dealing with SBA loan servicing is already very tough and laborious.

My advice to you if you are a business loan customer is to consider the following:

1. Determine exactly what collateral is pledged to your WaMu loans. You can find this out by getting copies of the UCC-1 Financing Statements filed by WaMu. Copies would have been filed in your local county courthouse as well as your state’s Secretary of State’s office. Often you can obtain these records online for a small fee.

2. If your loan is unsecured (meaning there are no company assets pledged to the loan), you have no problem with loan servicing, but you should be prepared to face substantially tougher scrutiny when your loan is ready to renew. If your company is solid and your personal credit is strong, you will be in the driver’s seat. If not, you should start considering finding alternative financing before your loan matures.

3. If you are an SBA loan customer of WaMu, you can’t easily move your loan to another bank. Having Tylenol on hand for times when you have to deal with loan servicing issues will help. If your loan is a real estate based loan, you have less to worry about because loan servicing is seldom necessary on real estate loans.

The bottom line is life just got a little harder for you if you were a WaMu loan customer.