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FDIC Consumer News - Summer 2002

Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Examples of Predatory Practices in Mortgage Lending

Bait-and-switch schemes: The lender may promise one type of loan or interest rate but, without good reason, gives you a different one. Sometimes a higher (and unaffordable) interest rate doesn't kick in until months after you have begun to pay on your loan.

"Equity stripping": The lender encourages you to borrow heavily from the equity in your home (the amount you own free and clear of your mortgage) as an easy way to get additional money, consolidate debt or fund home repairs, knowing that the fees and payments are so high you may not be able to make them. You dramatically reduce your equity and, in the worst case, the lender forecloses on the loan, takes possession of your home, and strips you of the equity.

"Loan flipping": The lender encourages you to get additional cash by refinancing your mortgage again and again. This tactic significantly increases your debt because fees (often exorbitant) are tacked on to each loan transaction, and you may pay a higher interest rate than with your original loan. You become saddled with higher payments, higher debt, and the risk of losing your home.

"Loan packing": The lender adds charges into the loan contract for overpriced items or items you don't need or didn't use, often totaling thousands of dollars. Examples: The lender may pressure you into buying insurance you don't need or trick you into paying for phony services.

Home improvement scams: A contractor talks you into costly or unnecessary repairs, steers you to a high-cost mortgage lender to finance the job, and arranges for the loan proceeds to be sent directly to the contractor. All too often, the contractor performs shoddy or incomplete work, and the homeowner is stuck paying off a long-term loan where the house is at risk.

Mortgage servicing scams: After getting the loan, you're told you owe additional money for bogus taxes, insurance, legal fees or late fees. Or, if you try to pay off the loan, the lender provides inaccurate information that causes you to pay too much or discourages you from refinancing with another lender.

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Last Updated 08/27/2002 communications@fdic.gov