FDIC guarantees deposits, not mortgages / LJWorld.com

Business

By David W. Myers

August 1, 2008

When the Federal Deposit Insurance Corp. seizes a bank, it reimburses most of the savers. Borrowers, however, still need to repay their mortgages.

Q: The bank that gave me my mortgage two years ago recently failed and was taken over by the federal government last month. The bank was insured by the FDIC. Will the federal government automatically pay off my loan, or do I have to keep making payments?

A: Sorry, but you will have to keep making your payments. The Federal Deposit Insurance Corp., or FDIC, is the government-run agency that insures a customer's deposits at a bank - not loans.

For example, if you had a $100,000 savings account or certificate of deposit at the failed bank, the FDIC's insurance coverage would guarantee that you would get all of your money back. But if you instead had a $100,000 mortgage, you will need to keep making the monthly payments in a timely manner.

Sooner or later, the FDIC will find a new bank to purchase your old one. Federal law prohibits the new bank from making any major changes to the terms of your original contract, including the interest rate that you are charged. The bank, however, can make minor alterations - mostly simple things, like requiring you to write the name of the new lender on your monthly checks and sending your payments to a new address.

Q: My husband and I purchased a tract home that was built in 1969, and now we want to sell it so we can move to a retirement community. The house came with big asbestos tiles on the floors, but we have covered them with linoleum in our kitchen and carpeting in other parts of our house for the past several years. Our real estate agent says that we should tell the buyers about the tiles underneath, but we think it's unnecessary because we have read a lot about asbestos and have learned that it's not a big problem unless it has been shaken loose by a remodeling project. What do you think we should do?

A: It would be a good idea to inform the potential buyers about the asbestos in the tiles, even if such disclosure isn't mandated by state law.

If you disclose the presence of asbestos today, your future buyers can take appropriate cautions if they buy your home now and decide to remodel later. Your own exposure to a future lawsuit also will be limited because you disclosed the problem before the deal closed.

Q: We are planning to start a major remodel of our house, and followed your advice by asking friends for referrals and getting three bids for the job. We decided to go with the lowest bidder, but how can we find out if the contractor has a legitimate contractor's license? Also, how can we find out if he's insured if someone gets hurt on the job?

A: First, ask the contractor to provide a copy of his license before you sign an agreement. But simply asking to see a copy is not enough, because some contractors have been known to "make up" their own licenses or to alter expired licenses so they appear to be up-to-date.

To help ensure that the contractor is legitimate, you should then contact the agency that regulates contractors in the area. In most states, it's the contractor's state license board, the department of real estate or the department of consumer affairs.

If you have access to the Internet, you should also visit www.contractors-license.org. It's a great Web site that not only lets you ensure that a particular contractor is licensed but also includes the licensing requirements in each state.

Discussion

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1 August 2008
at 5:58 a.m.

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igby (Anonymous) says…

I thought this was common knowledge in Econ 101. Better get those CD's down under $100,000.00, now!I asked this question 25 years ago in Econ class to the instructor. “If a person has $100,000.00 in a CD and the bank goes into receivership with the FDIC or FSLIC, would the person lose the interest earned on the $100,000 deposit during the close of the business day. The interest would be lost. Anything above $100,000.00, principal or interest would be lost.
1 August 2008
at 6:15 a.m.

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tangential_reasoners_anonymous (Anonymous) says…

igby: “I asked this question 25 years ago…If a person has $100,000.00 in a CD…?”So, you were one of the first to make the pricey transition from vinyl.(Boy, have prices come down.)
1 August 2008
at 6:19 a.m.

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TopJayhawk (Anonymous) says…

By and large the people who are in trouble on their mortgages were caught with their hand in the cookie jar. They were speculating, trying to make an easy buck, and got caught, now they want the government to bail them out. I say no. The first question really does about say it all. These folks are still looking for the easy way. Eg, My speculative deal fell through. Does this mean the Government will pay for my house??? Duh, you are lazy and dishonest. Cut your losses and move on. And quit expecting us taxpayers to bail you out of your own irresponsible, and lazy ways.
1 August 2008
at 6:30 a.m.

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Chicago_82 (Anonymous) says…

Igby, although $100,000 is the FDIC limit, accounts can be insured above that amount depending on the ownership of the account. For example, a CD with a husband and wife as owners, and their three kids as beneficiaries is insured up to $600,000. If you want to find out if your accounts are insured, you can go to the FDIC website, and they have an Electronic Deposit Insurance Estimator (EDIE). You just plug in your account ownerships with balances, and it tells you how much is insured.
1 August 2008
at 8:21 a.m.

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Godot (Anonymous) says…

Chicago_82 is correct, but why put so much trust in one institution? If you are taking the safe route to be invested in cd's, then be safe and spread them out among several banks.