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FDIC Consumer News - Summer 1999

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.

Shop 'Til You Drop Those Mortgage Costs

New brochure explains how any consumer can negotiate the best deal on a home loan

You should look for a mortgage the way you'd look for a car—get all the important cost information, shop around and, yes, negotiate for the best deal.

That's the message of "Looking for the Best Mortgage: Shop, Compare, Negotiate," a free consumer brochure published by 11 federal agencies, including the FDIC, other banking regulators, the Federal Trade Commission and the U.S. Department of Housing and Urban Development.

"This brochure provides critical information about a consumer's ability to negotiate the rates and terms of loans, which can lead to lower closing costs and more affordable mortgages for millions of homebuyers," says FDIC Chairman Donna Tanoue. She adds that the brochure is "one more example of the critical role of banking regulators in educating consumers, in addition to enforcing compliance with consumer protection rules."

Elaine Drapeau, a Community Affairs Specialist with the FDIC in Washington, says the agencies developed the brochure partly because "we had the sense that many consumers, if not most of them, aren't aware that they can negotiate the rates and terms of a mortgage."

The brochure describes how comparing and negotiating interest rates, fees and other payment terms can help you get the best financing and possibly save thousands of dollars, whether it's a home purchase, a refinancing or a home equity loan.

Here's one example of why you should ask about costs and negotiate for the best deal: Many people think that when they get a quote on a loan from a lender or a mortgage broker (someone who finds a lender for you) that the same price is being offered to everyone. But on any given day, a lender or broker may offer the same loan at different prices for different consumers, even if those consumers are equally qualified for the loan. Why? Often that's because the loan officer or broker is allowed to keep some or all of the difference between the lowest-price loan available and any higher price the consumer agrees to pay. It's extra income for the employee—called an "overage" in the lending business.

Many practical consumer tips from the brochure appear in the box below. In addition, the brochure outlines common sources for home loans, explains key mortgage-lending terms and highlights some of the laws that protect consumers from unfair lending practices. It also contains a worksheet consumers can use to compare costs while shopping.

You can read the brochure online at the FDIC's Internet site.  Or, order single copies free from the FDIC's Public Information Center.

picture of house with sold tag

 

Mortgage Shopping Tips

The following are practical tips from the brochure "Looking for the Best Mortgage: Shop, Compare, Negotiate," published by 11 federal agencies, including the FDIC:

l Don't be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.

l Have the lender or broker write down all the costs associated with a loan, then ask about better rates, fees or other terms than the original ones quoted or those you found elsewhere. "You'll want to make sure that the lender or broker is not agreeing to lower one fee while raising another," the brochure adds.

l When considering a loan with "points" (fees paid to the lender or broker where one point equals one percent of the loan amount), ask for them to be quoted as a dollar amount so you actually know how much you'd pay.

 

l Your local newspaper and the Internet can be good places to start shopping for a loan, but check often because rates and points can change daily. Also, the newspaper doesn't list the fees, so be sure to ask the lenders about them.

l It isn't always clear from advertisements whether you're dealing with a lender or a broker, so find out if a broker is involved and how he or she would be paid. Be prepared to negotiate for the best deal, whether it's with a broker or a lender.

l Sometimes you can borrow the money you need to pay the loan's fees, but remember that doing so will increase your loan amount and total costs. Also, while "no-cost" loans are sometimes available, they usually involve higher interest rates for the loans themselves.

l If you agree to "lock in" a loan at a particular interest rate and number of points, you're protected in case rates increase while your loan is being processed. But if rates fall, you could end up with a less-favorable rate. "Should that happen," the brochure says, "try to negotiate a compromise with the lender or broker."

l Even consumers with past credit problems should shop around and negotiate for the best deal. If your credit problems were caused by unique circumstances, such as illness or a temporary loss of income, explain your situation to the lender or broker. If your credit problems cannot be explained, you'll probably pay more than borrowers with good credit histories, but you shouldn't assume your only option is a high-cost loan. Ask several lenders what you need to do to get the lowest possible price.

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Right to Cancel Mortgage Insurance Takes Effect
Reminder: A 1998 law that will make it easier for a homeowner to cancel private mortgage insurance (PMI) and perhaps save several hundred dollars a year is now in effect for new residential mortgages and mortgage refinancings originated on or after July 29, 1999.

PMI is an insurance policy that protects the lender from losses when a mortgage goes bad. Lenders usually require PMI for borrowers who make a down payment of less than 20 percent of the home value. Under the new law, with certain exceptions, PMI automatically will be terminated if the borrower accumulates 22 percent equity in the home and is current on mortgage payments. Also, if the borrower has a good payment history he or she may request that PMI be cancelled when built-up equity equals at least 20 percent of either the purchase price or the original appraised value, whichever is less. Prior to the new law, a lender could continue to require monthly PMI payments long after the borrower had built up substantial equity in the home and the lender no longer faced losses from default.

For more details, start with your mortgage lender or, if your loan has been "sold," contact the company where you send your mortgage payments.

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Last Updated 09/10/1999 communications@fdic.gov