Mortgage Updates

Recently it came to my attention that folks are moving funds into bank instruments due to the uncertainty of our financial markets. Over the last several months I have had three customers tell me that they had moved their savings out of the bank and into Cashier's Checks to tuck away at home or in a safe deposit box. –Bad idea, very bad.

This of course creates a challenge if you are in the process of buying a home. Funds for down payment and closing costs require careful tracking for the successful completion of the loan process. When funds are moved in the above manner, they have to be traced back to the original depositor’s bank account and then re-deposited. But, the tracking of funds could be the least of your worries if your bank fails before the check clears.

Recently I noticed a sign posted in a rather inconspicuous place at my local bank. The pronouncement was very clear. Funds drawn on bank instruments -checks, are NOT FDIC insured. It seems that over the last few years banking procedure has changed. It used to be that when a cashiers check or certified check was requested, the issuing account number was noted on top of the check. The bank then put a “hold” on those funds in the customer’s account. These funds were now “certified” to be available to the recipient bank upon deposit.

Since the procedural change, banks are moving the requested funds immediately out of the customer’s account and into a “general” account held in the bank’s own name. –Smart move for the bank, they no longer give the customer credit for the deposit avoiding the payment of interest, etc. on funds still in the bank but not in the customer’s account.

All “certified” funds for all customers a co-mingled in this general account. If the bank were to fail, these funds would no longer be available. Since the account is not held by a consumer, but rather the bank; there is no FDIC insurance.

I’m hopeful that this information will help keep your money safe, and if not safe at least insured.