Don't be duped by a too-good-to-be-true offer
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Most consumers know to look for a padlock or "https"
in the Web site address box to signify that the information will
be sent in an encrypted format. The Federal Savings application
page says, "This form is designed to ensure online privacy
and security" but nothing else indicates that.
We contacted VeriSign, a company that specializes
in Web site security. Their spokesman, Brendan Lewis, perused the Federal Savings
Web site for us. Lewis said it didn't appear that a consumer would be entering
into a secure session at all.
"If the data is being transmitted
in any fashion and you don't see the padlock or the 'https' in the address bar,
it's not electronically encrypted in any way. You can't be assured that the integrity
of the transaction on the Internet is secure." A
recorded message raises red flags
The recorded message on the answering
machine for the hot line is lengthy. The unidentified voice almost seems to be
trying to explain away questions about the company. Here are a few of the statements
in the message that strike us as, well, odd. "Are
term certificates FDIC insured? No, and here's the reason why. Although the FDIC
provides a valuable service in regulating the banking industry, it also has some
very restrictive policies for mortgage lenders as regards the types of loans they're
allowed to offer. "Because Federal Savings is a direct
lender, we can take advantage of higher-yield mortgages that the FDIC will not
insure. ..." Nitpick
No. 1: The FDIC doesn't insure mortgages; only deposits. "What
is a term certificate? A term certificate is like a CD with a few big differences.
With a CD you can withdraw your funds before the end of the term. With the term
certificate, you don't have access to your funds until the end of the term.
"A CD usually has a much lower interest yield. Right now
the highest CD yield is around 5.5 percent. The investor accepts lower rates in
return for easier access to their money."
Nitpick
No. 2: Consumers accept lower rates because there's no risk of default.
"Is Federal Savings a bank? No, Federal
Savings is a direct lender. Banks make money primarily by writing and reselling
mortgages, which is a very low-margin business. We actually fund mortgage loans
ourselves, which allows us to earn much higher yields because a) we're cutting
out the middleman and b) unlike banks we can charge high default penalties, which
banks are restricted from doing.
Nitpick
No. 3: Default penalties? If the borrower defaults, Federal Savings probably
isn't collecting any money. "Many of our
clients invest over $100,000, which exceeds the FDIC limit for insured funds."
Nitpick No. 4:
The FDIC limit is $250,000 in retirement accounts and $100,000 in general accounts.
But there are several ways to get around that. | 
