Q&A: Is your 401(k) safe? Mortgage? Insurance?

It was a crazy week in the financial world. Trying to figure out what it all means is tough. Here are some answers to your questions:

Q: If the company that holds my mortgage goes bankrupt or is bought out, should I keep paying my mortgage?

A: Yes. By all means. Don’t get behind on your mortgage payments. Even if your mortgage holder goes bankrupt, your loan and others will be sold to other companies. The most that would happen is you’d send your payment to a different address.

Q: What if my retirement account is at Lehman Brothers? Am I going to lose my money?

A: The assets held in your retirement account (401(k) or 403(b) or IRAs of various sorts) belong to you. Creditors of the company administering your plan may not touch them. The Securities Exchange Commission has staff on site to make sure none of the investment account money gets mixed up with company money.

Q: Am I in trouble if my life insurance policies and/or annuities are with AIG?

A: Most insurance law is set at the state level, and generally, when one insurance company buys the policies of another, everything about the policy stays the same. AIG has announced plans to sell off some of its parts, such as its annuities unit. If your policy is sold, chances are, nothing would change.

If AIG goes bankrupt, it will still be the goal of regulators to move AIG policies to other insurance companies. If AIG goes into liquidation, your policy would make you a creditor at the head of the line. AIG would pay as many claims as it could, then state guarantee funds would kick in.

Q: What has the government done so far to try to stabilize the worst financial turmoil since the Great Depression?

A: The U.S. government has already taken actions that required more than $600 billion of taxpayers’ money: Up to $200 billion overall was made available to mortgage giants Fannie Mae and Freddie Mac when the government seized them earlier this month; insurer American International Group Inc. was given an $85 billion, two-year loan, in exchange for giving the government right to a nearly 80 percent stake in AIG.

Also, as part of JPMorgan Chase & Co.’s takeover of Bear Stearns Cos. in March, the Federal Reserve provided a $29 billion loan. And in a new “Hope for Homeowners” program starting Oct. 1, the Federal Housing Administration can insure up to $300 billion in refinanced mortgages for troubled borrowers — if the existing investor voluntarily agrees to take a loss on the loan.

Q: What’s next?

A: Proposals to create a new entity to clean up the nation’s financial crisis — much like the government did in the late 1980s to clean up the savings and loan mess with the Resolution Trust Corp. — came from Treasury Secretary Henry Paulson late last week.

— Source: Wire services and staff research