Briefly Noted

    NASD Alert: The Low Down on No Money Down

    The NASD is warning investors of the risks of 100% mortgages now being offered by some brokerage firms. In particular, the NASD is concerned that many investors do not understand that the securities they pledge in lieu of a down payment may be liquidated if the value of the securities drops below a certain level or they default on their mortgage.

    Most brokerage firms use a subsidiary, affiliate or separate bank to administer their mortgage program. The typical 100% mortgage or pledged-asset mortgage requires little or no cash down payment. Instead, you pledge securities in your brokerage account in lieu of a down payment, allowing you to finance up to 100% of the value of your home. The amount you pledge usually exceeds the amount required, thereby allowing for some fluctuation in the value of the securities. However, if the value of the pledged securities goes down below a set minimum, your firm may issue a collateral call, which is a demand that you deposit additional cash or securities. If you can’t do so or the securities continue to decline, your firm may sell your securities, sometimes even without notifying you.

    Before applying for a 100% mortgage, the NASD suggests individuals understand the following risks:

    • 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.

    • Your firm can force the sale of securities in your account to meet a collateral call.

    • Your firm can sell your securities to meet a collateral call without contacting you.

    • You are not entitled to choose which securities in your account are sold to meet a collateral call.

    • You are not entitled to an extension of time to meet a collateral call.

    • If you default on your mortgage, you could lose both your house your pledged securities.
    The NASD also makes the following suggestions for those who decide to use a 100% mortgage:
    • Consider pledging a diversified portfolio rather than a single stock.

    • If you use securities as collateral, you may not want to pledge all your available securities. Instead, retain some securities or cash so that you can promptly meet a collateral call.

    • Monitor the price of your pledged securities on a daily basis. If you see that the securities in your account are declining in value, consider depositing additional cash or securities.

    • If you receive a collateral call, act promptly.

    If It Looks Phishy, It Probably Is

    The FDIC continues to warn individuals about fake Web sites and E-mails that attempt to trick consumers into divulging valuable personal information, such as bank account and credit card numbers, Social Security numbers, passwords and personal identification numbers (PINs).

    In the typical scam, which law enforcement officials call “phishing” schemes, consumers receive an E-mail purportedly from a company or financial institution they may do business with or from a government agency. The thieves ask for personal information that, if provided, can be used to make unauthorized withdrawals from your bank account or pay for on-line purchases using your credit card, or can be sold to other thieves. Even the FDIC’s name has been used fraudulently in these scams.

    For more information about how to protect against these types of frauds, see “When Internet Scam Artists Go ‘Phishing,’ Don’t Take the Bait,” in the Winter 2003/2004 issue of FDIC Consumer News, on-line at

    Find Value in Old Certificates

    An old stock or bond certificate may still be valuable even if it no longer trades under the name printed on the certificate. The firm may have merged or changed its name, and the stock may therefore still have value. In addition, the certificate itself may have value as a collectible.

    The SEC suggests the resources below to find out if an old stock or bond certificate has value. These resources may be found on the Internet, at public libraries, stock exchanges, or stockbrokers’ offices. For a fee, researches whether your stock or bond certificate has any value. The company also is a large buyer and seller of collectable certificates, with a list and images of more than 4,500 different companies (; 703-787-3552; 888-786-2576).

    Financial Stock Guide Service, published by Financial Information Inc. The comprehensive guide, updated annually since 1927, contains a directory of actively traded stocks and obsolete securities. You can have the Custom Research department research your certificate by calling 800-367-3441 (

    Robert D. Fisher Manual of Valuable & Worthless Securities, published by R.M. Smythe & Co. A multi-volume resource that is particularly helpful if you are trying to trace the value of very old stock certificates. R.M. Smythe will research your certificate for a fee (; 212-943-1880; 800-622-1880).

    Moody’s Industrial Manual and Moody’s OTC Industrial Manual, published by Mergent Company. These manuals give brief summaries of companies’ histories, backgrounds, mergers and acquisitions, subsidiaries, principal plants, and properties. Updated annually. Subscription information is available on-line or by phone (; 800-342-5647).

    National Stock Summary, published by the Pink Sheets LLC. A monthly publication summarizing all over-the-counter and inactive listed stock offerings. Also includes the recent prices of such securities. The Pink Sheets will research your certificate for a fee (; 212-896-4400).