|
...article started here
100% Mortgages: The Low Down on No Money Down 2
100% Mortgage Risks
It is important that you fully understand the risks involved with 100% mortgages. These include:
Even after you obtain your mortgage loan, you may be required to deposit more cash or securities if the value of the securities you pledged falls below the minimum required by your firm. A decline in the value of the securities you use as collateral for a 100% mortgage may require you to provide additional cash or securities to your firm to avoid the forced sale of those securities. Ask yourself: If I didn't have the cash in the first place for a down payment, where will I find the cash if my securities lose their value?
Your firm can force the sale of pledged securities to meet a collateral call. If the value of pledged securities falls below the minimum amount set by your firm, the firm can sell the securities you pledged. The cash received from the sale of securities then remains in the account until:
The mortgage is repaid or refinanced;
You instruct the firm to use the funds to pay down the mortgage;
The equity in your home reaches a certain level, allowing the collateral account to be closed; or
The cash is applied to the outstanding mortgage balance upon default, if necessary.
Your firm can sell your securities without contacting you. While most firms will attempt to notify their customers of collateral calls, they are not required to do so. Even if you're contacted and provided with a specific date to meet a collateral call, your firm may decide to sell some or all of your securities before that date without any further notice to you. For example, your firm may take this action because the market value of your securities has continued to decline.
You are not entitled to choose which securities are sold. There is no provision that gives you the right to control liquidation decisions. Your firm may decide to sell any of the securities that are held as collateral for your mortgage.
You are not entitled to an extension of time on a collateral call. While an extension of time to meet a collateral call may be available to you under certain conditions, you do not have a right to the extension.
If you default on your mortgage (stop making your monthly payments), you could lose both your home and the securities you pledge. Some states allow your firm to immediately sell your securities if you default on your mortgage. Other states only allow your securities to be liquidated after your house is sold for a loss at a public sale.
Do Your Homework!
Shop around for the best mortgage for you. Mortgages are available from several types of lenders — banks, mortgage companies, and credit unions. Along with some brokerage firms, these financial institutions can offer a wide selection of mortgages and terms from which you can choose. Shop around, compare costs, and negotiate the best deal.
Make sure you fully understand how a 100% mortgage works. It is important to take time to learn about the risks involved in 100% mortgages. Consult with your broker or lending officer about any concerns you may have with your mortgage.
Know your firm's collateral call policies. Read your pledge agreement and other loan documents. Speak with your broker or lending officer if you don't understand these policies.
Consider pledging a diversified portfolio rather than a single stock. Diversification can reduce the possibility of a collateral call because it is less likely that a variety of investments, such as stocks, bonds, and cash, will move up and down in value at the same time or at the same rate.
If you use securities as collateral for a mortgage, you may not want to pledge all your available securities. Unless you have other liquid assets, you may not want to pledge all your securities; instead, retain some securities or cash so that you can promptly meet a collateral call demand to pledge additional cash or securities.
Manage your pledged securities. Monitor the price of your pledged securities on a daily basis. If you see that the securities in your account are declining in value, you may want to consider depositing additional cash or securities to attempt to avoid a collateral call. If you receive a collateral call, act promptly to satisfy the call. By depositing cash or additional securities, you may be able to avoid your firm liquidating or selling the securities that it chooses.
Where to Turn for Help
If you have a problem with the brokerage firm that recommended a 100% mortgage strategy that the firm did not resolve to your satisfaction, you can file a complaint online at NASD's Investor Complaint Center.
Resources
To learn more about finding a mortgage that's right for you, read the Federal Deposit Insurance Corporation's (FDIC) Looking for the Best Mortgage.
* Most brokerage firms use a subsidiary, affiliate or separate bank to administer their mortgage program. For the purposes of this Alert, "brokerage firm" and "firm" refers to both the brokerage firm and any other entity that administers a mortgage program offered through the brokerage firm.
--------------------------------------------------------------------------------
NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit NASD's Web Site at www.nasd.com.
|
|
