Big bank saddles mortgage borrower with hefty bill

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A Canadian couple was shocked to learn that they owed their lender tens of thousands of dollars to end their fixed-term mortgage early.

Shane and Joy Trusz, an Edmonton couple, knew they would be dinged with a penalty and expected to pay the equivalent of three months interest -- $4,000 – but were surprised when TD Bank charged them a much bigger figure, according to CBC News.

“We came out with a figure, it was about $7,000,” Shane Trusz told the CBC. “So, how is TD coming up with $17,000? I have no idea.”

The contract with TD stipulates that the bank will charge an early exit penalty of either three months interest or the Interest Rate Differential.

Shane Trusz, who has been a TD customer for just under 20 years, told the CBC he expected the bank to make an exception in their case. The couple decided to sell their home and their positions to move to Haiti to run an orphanage.

“We have some money set aside for project costs, to buy land, create businesses. We’re going to be using our own money to do that – and so when all of a sudden we’re going to have $17,000 less than we thought we were going to have, we see that in human terms,” Trusz said. “The last time I was there I lent a Haitian $2,700 to build his first home with indoor plumbing.

“He has two girls, so they’re going to live in a house with a toilet and a sink for the first time in his life.”

The Trusz family plan to live in Haiti on a budget of $24,000 a year. Pleas to the bank’s district vice-president were declined.

“I was devastated,” Trusz told the CBC. “We’re laying down everything we love about this world, living here in Canada, to go and help people. So, if you can’t make an exception for that, what would you make an exception for?”

Calls to TD from CBC Go Public eventually lead to a settlement offer to the couple, which was accepted.
  • bill on 2014-10-08 1:37:36 PM

    its the calculation of interest differential using the discount from the original posted rate and then discounting today's posted rate for the remaining term - a clear case in my opinion of unjust enrichment on the part of the big banks.

  • J G on 2014-10-08 1:40:31 PM

    No offense, but this going to the media to get a rebate has to stop.

    It's in the contract that you signed, if you don't know what you're signing - DON'T sign it. Better yet, go to a broker who explains how different lenders operate.

    Rarely do my borrowers go with a bank mortgage, because they know how they calculate their penalties when they leave my office.

  • Barb on 2014-10-08 1:41:51 PM

    how would the clients have liked it if the Bank came to them and said they'd decided not to honour the fixed rate that their contract promised for 5 years? This is not a story

  • Kent Farnsworth on 2014-10-08 1:42:13 PM

    And this is news why? lol

  • Brian on 2014-10-08 1:44:38 PM

    I completely agree with Bill's statement...why OFSI has not stepped in on the practice of using an artificial discount (posted is 4.79 right now...and NO ONE is paying more than 3.04% to TD so they add 1.75% to the TRUE DIFFERENTIAL)....PLUS the difference between the rates for the comparable remaining term....its criminal and a practice that should be STOPPED - unfortunately ALL the big banks do it....as its a great way to recognize revenue each quarter....rather than looking after the customer with a "blend and extend" that allows the penalty to be spread over the entire new term

  • Hal on 2014-10-08 1:44:43 PM

    CIBC is currently involved in a class action lawsuit for this very same thing. See http://www.courts.gov.bc.ca/jdb-txt/SC/14/11/2014BCSC1199cor1.htm. RBC was successfully sued by the same lawyer a few years ago. Looks like TD will be on his hit list soon.

    If you know of anyone who has had a mortgage in the past with CIBC, PC Financial, Firstline, or any other subsidiary, have them contact the lawyer named in the article to find out if they can join the class action.

  • bill on 2014-10-08 1:46:37 PM

    if lenders explained the penalties properly to begin with - we would not have these issues - the new calculations is not true interest differential - its a method of increasing the penalty to get away from a mortgage - monolines do not generally calculate the penalties this way - its time the government stepped in and formalized penalty calculations - lets go back to the old ....open with 3 months interest after the third anniversary......

  • Hal on 2014-10-08 1:47:23 PM

    I understand being charged an IRD, but the problem is that many of the banks are not disclosing the formula used. For some of my clients the numbers aren't adding up. Furthermore, they are told one number one day, then when they ask for it in writing at closing they are told the number is in some cases twice as much.

    ATB Financial in Alberta is one of the worst offenders of this.

  • Omer Quenneville on 2014-10-08 1:49:04 PM

    TD is notorious for not explain the terms of the mortgage contract. I agree, know what you are signing, but I also feel informed consent. Clients think all mortgages are the same regardless. Perhaps they should be (legislated).

  • Omer Quenneville on 2014-10-08 1:49:04 PM

    TD is notorious for not explain the terms of the mortgage contract. I agree, know what you are signing, but I also feel informed consent. Clients think all mortgages are the same regardless. Perhaps they should be (legislated).

  • Omer Quenneville on 2014-10-08 1:49:10 PM

    TD is notorious for not explain the terms of the mortgage contract. I agree, know what you are signing, but I also feel informed consent. Clients think all mortgages are the same regardless. Perhaps they should be (legislated).

  • Omer Quenneville on 2014-10-08 1:49:42 PM

    TD is notorious for not explain the terms of the mortgage contract. I agree, know what you are signing, but I also feel informed consent. Clients think all mortgages are the same regardless. Perhaps they should be (legislated).

  • rhéau on 2014-10-08 1:49:48 PM

    TD is the bank with the highest penalties on the market,i think its our job as brokers to notified our client to that situation, Aldo, in this case they made a human settlement,it was for a good cause,great !!!!!

  • MP on 2014-10-08 1:53:11 PM

    I agree with Brian that it is a criminal practice by the banks and needs to be stopped. The banks use this tactic as a retention tool. Ding people with big penalties so they can't leave an go elsewhere--their only choice would be to port the mortgage or blend and extend. However, in this case the people were moving out of the country and didn't have that option. How sad...As brokers we need to get the message out there.

    I actually did a study with my own mortgage...6 months ago my penalty was $5700 with Scotia--the equivalent mortgage would have been $1500 with a monoline like FN. I did the same study just the other day with six months less time remaining on the mortgage and the penalty with Scotia has gone to $8522 and FN would be still $1500...Talk about a crazy world we live in...

  • MP on 2014-10-08 1:53:21 PM

    I agree with Brian that it is a criminal practice by the banks and needs to be stopped. The banks use this tactic as a retention tool. Ding people with big penalties so they can't leave an go elsewhere--their only choice would be to port the mortgage or blend and extend. However, in this case the people were moving out of the country and didn't have that option. How sad...As brokers we need to get the message out there.

    I actually did a study with my own mortgage...6 months ago my penalty was $5700 with Scotia--the equivalent mortgage would have been $1500 with a monoline like FN. I did the same study just the other day with six months less time remaining on the mortgage and the penalty with Scotia has gone to $8522 and FN would be still $1500...Talk about a crazy world we live in...

  • John Martin on 2014-10-08 1:57:47 PM

    Glad to see the bank did the right thing. Would never have if the media didn't get involved. Don't worry about the banks by the way they take good people to the cleaners gouging them with every sort of a rip of fee imaginable all year long. Credit cards is the king of them all of course. JM

  • Leo on 2014-10-08 2:07:56 PM

    In all of TD Canada Trusts Mortgage Agreemnets that client review, sign, and take home with them, it clearly states (with a handy example calculation and referrences to where to find more information to calculate potential penalties) when, how, why, what the potential penalty may be calculated. It repetedly states this in many parts of the agreement. How is this news worthy of posting. I find mortgage broker news a bank bashing site that sends me articles that bash banks and inform me of "Reality Television MOB Wives stars" being charge with mortgage fraud. WHOOOOOO CARES about that crap.
    Stop reading these articles as they are not geared to professionals but rather peopel who like to read smut info. Very disapointed with MBN!!!!!!!!!!!!!!!!!!

  • J K on 2014-10-08 2:40:02 PM

    NO J G,
    it doesn't have to stop. It is valid, and news worthy. The lending institutes in North America should be ashamed! Vampires with an unquenchable thirst for profits regardless the cost or who gets run down in the process! This corporate notion of "It's just business" is appalling! That is what actually should come to a STOP! No offense.

  • Terri on 2014-10-08 2:47:17 PM

    If you read the article, it doesn't sound like TD did anything wrong - in fact, it sounds like the clients were aware of the IRD penalty and were looking for special treatment based on what their plans were "Shane Trusz, who has been a TD customer for just under 20 years, told the CBC he expected the bank to make an exception in their case."

  • Keith on 2014-10-08 2:53:32 PM

    nothing said here about the origination of the mortgage, was it broker originated.....was it branch or mortgage specialist. remember TD is a supporter of the broker channel... maybe they may get tired of this bashing. The mortgage is a contract, like it or not

  • P Gooding on 2014-10-08 3:06:51 PM

    I think all of the "Big 5 Banks " that show a "Posted-Rate" are doing this injustice. I just experienced this myself with Scotia Bank !! My penalty was double the expected amount! I tried discussing with the Mortgage Professional there at the branch and just got the run around.
    This is why I use mortgage Companies instead now....ones that calculate the penalty based on their loss of business...which is reasonable. However, don't tell me that the rate you offered me when I did my mortgage is not the rate used to calculate the loss to the bank for breaking the contract...instead they bounce back to the "Posted rate" at the time the mortgage was taken...which was never discussed!!

    I think the Minister of Finance needs to regulate Banks with their penalties...Clients are being gorged!! Its Extortion!!!

  • Omer Quenneville on 2014-10-08 3:29:01 PM

    I would never place a mortgage with TD. Did you ever stop to think that those commissions that they pay is like drinking the cool aid. I certainly don't care if they pull out.

  • Don Miller on 2014-10-08 3:42:00 PM

    The gov't needs to protect the consumer in this case.
    Also, the banks need to operate under the same rules as the other financials institutions.
    SHAME! The Polictical Lobbying!! SHAME!

  • Gaylene on 2014-10-08 4:16:35 PM

    And where would you guys who broker your deals to the BIG Banks go, if there were no BIG Banks???Shame on you for criticising the banks that provide a stable economy... Read your contract... i agree this is not news

  • tim on 2014-10-08 4:47:33 PM

    Those people who commented that this is not a story, or it is not news, or think the bank is correct, do not understand the issue. The interest rate differential was always based on the actual rate they are paying vs the current rate at time of payout. Now the banks, RBC and TD that I know of, calculate the penalty using the fictitious 'Posted rate' which is just a greedy cash grab, and should not be legal. It should be outlawed.

  • tim on 2014-10-08 4:47:38 PM

    Those people who commented that this is not a story, or it is not news, or think the bank is correct, do not understand the issue. The interest rate differential was always based on the actual rate they are paying vs the current rate at time of payout. Now the banks, RBC and TD that I know of, calculate the penalty using the fictitious 'Posted rate' which is just a greedy cash grab, and should not be legal. It should be outlawed.

  • Guy on 2014-10-08 5:01:13 PM

    Gaylene, i agree that we need the banks to make the world go round, but they don't provide a stable economy. The mono-line lenders are the ones keeping the economy stable. Without them, the mortgage lending business would be a monopoly again. I also share the opinion that this is not news...it's simply a reoccuring practice. Further proof why the accredited mortgage professional working in the broker channel is such a valuable tool to the consumer.

  • Guy on 2014-10-08 5:01:19 PM

    Gaylene, i agree that we need the banks to make the world go round, but they don't provide a stable economy. The mono-line lenders are the ones keeping the economy stable. Without them, the mortgage lending business would be a monopoly again. I also share the opinion that this is not news...it's simply a reoccuring practice. Further proof why the accredited mortgage professional working in the broker channel is such a valuable tool to the consumer.

  • Ron Butler on 2014-10-08 5:30:41 PM

    I think it is absolutely fair and necessary to charge an IRD penalty. It is the only way mortgage securitization could work and that is the basis of our existence as mortgage brokers. The question is the clarity and simplicity of the disclosure, it should be easy for a layman to understand and it should not require complex future rate inputs. If a break penalty disclosure runs to 12 paragraphs and 3 different future rate inputs you have to question what hope the average member of the public has of ever understanding what their future penalty may be.

  • Lior, Mortgage Edge on 2014-10-08 5:46:17 PM

    Ron, our profession as brokers is to provide consumers with realistic figures in a transparent manner. Case in point: we are currently working on two refinance deals that were pre-approved with a major bank but closed through a monoline lender. The penalty cost to break these mortgage through the monolines is ONE FORTH of what it would have cost at the major bank. And those are big mortgages. When one lender is charging 5,700 to pay out a $500,000 mortgage and the bank is charging 26,000, as brokers we need to drive the point home that while banks may be an excellent provider of banking accounts and credit cards, the mortgage penalties they charge are exorbitant and outright confusing even for financially savvy consumers. With these kind of stratospheric amounts it is difficult to see how much of an exception a bank can make even for the most valued clients.

  • Ron Butler on 2014-10-08 6:48:43 PM

    Lior,, you are right, there is no question many monolines offer easy to understand and generally much lower break penalties than banks. Conversely most monolines cannot offer the HELOCS that banks can offer nor can they offer mortgages broken up into segments, although we may be seeing those products offered by some monolines soon. My main complaint is break penalty disclosure no one could ever wrap their heads around. That is just not fair. As far as promoting mortgages based on the break penalty is concerned maybe a case can be made just to market Variable rate where there is always a guaranteed penalty or just marketing short term rates so the break penalty is minimized.

  • Proudbanker on 2014-10-09 8:13:25 AM

    They had no problem getting the lower fixed rate. They signed their commitment, not only with the bank but also with their lawyer, they reaped the benefits of having the low rate VS an open term mtg. So now they want to go to open an orphanage in Haiti - WHO CARES - this doesn't mean the bank needs to waive it. What about those selling homes because they have cancer and can no longer afford the payment? the bank doesn't waive the penalty because of their health. Give me a break. You have the option to doubling up your mortgage P&I payment between now and the day you close and also placing 15% lump sum payment down on the mortgage PRIOR to paying out. Stop crying about fees when you signed for it.

  • Proudbanker on 2014-10-09 8:13:36 AM

    They had no problem getting the lower fixed rate. They signed their commitment, not only with the bank but also with their lawyer, they reaped the benefits of having the low rate VS an open term mtg. So now they want to go to open an orphanage in Haiti - WHO CARES - this doesn't mean the bank needs to waive it. What about those selling homes because they have cancer and can no longer afford the payment? the bank doesn't waive the penalty because of their health. Give me a break. You have the option to doubling up your mortgage P&I payment between now and the day you close and also placing 15% lump sum payment down on the mortgage PRIOR to paying out. Stop crying about fees when you signed for it.

  • Proudbanker on 2014-10-09 8:20:39 AM

    Oh...and go to a mortgage broker instead of the actual bank??? MORTGAGE BROKERS USE THESE LENDERS TO APPROVE THE MORTGAGES. The bank uses brokers because they aren't paying a salaried employee and instead, pays a finders fee to the broker. Hopefully you get a broker who doesn't increase rates for a higher finders fees - just saying. While there are some great mortgage brokers out there, there are also shady ones too who constantly rewrite deals for clients on a yearly basis and send them to another lender to get full compensation.

    Anyways, IRD is based on bond yields. The banks take mortgage funds from GIC/BOND clients. If you decide to break your mortgage term the banks still have to pay the rate to the clients who have that GIC/Bond. So now who really is out money???

    Good job to the Big 5 Banks. Love your stock prices!

  • Omer Quenneville on 2014-10-09 8:56:26 AM

    Spoken like a true "ProudBanker" They didn't chose the lower fixed rate. They were pushed into the longer fixed rate vs the lower variable rate using fear tactics and not then not having the cost to discharge early explained. Anyone that has this information explained will most likely not take "the lower fixed rate". And a good mortgage broker wont use these lenders Proudbanker, I certainly don't. Not without cautioning the clients.

  • Barb on 2014-10-09 8:57:42 AM

    the penalties are disclosed in their contract, but the clients are more interested in getting 'best rate" than best mortgage. The bank has now promised a certain interest rate to investment clients who also signed a contract. Who will pay their interest now that the clients have received their exception to not have to pay back the interest they said they would? while bank penalties may not be equitable to monolines-they are certainly legal right now. In black and white, the bank did nothing wrong here. The client is at fault.

  • Omer Quenneville on 2014-10-09 9:54:59 AM

    Barb, I agree 100%, But if the bank clearly explained this upfront, I think most would not lock into a fixed long term not lower rate. "86% of the people that took variable over fixed since 1976 has done better". I've sat in the bank and listened to the scare tactics with my clients before I was a mortgage broker. They use the same tactics to rope them into useless insurance as well. I witnessed one say "so you don't want to protect your family". Discusting! That was BMO at the corner of Alexander and Church Street.

  • Jennifer on 2014-10-09 11:14:23 AM

    I have to say the Banks are over charging on the penalties. I worked for a bank for over 35 years and understand that they have committed to a GIC customer but you can not convince me that the penalty is fair and equitable. My son has just sold his house and has requested a payout on his mortgage. The mortgage penalty on this mortgage is $17,000. If he requested a payout on this same mortgage 5 years ago his penalty would have been $3,000. This is an increase of 550% how is this right or ethical? It is time we all spoke up and asked for some legislation with regards to mortgage penalties. He would normally refinance with his existing bank and have the penalty refunded, however he is building a new home and will not have the mortgage within the few months they allow for refund of penalties.

  • Jon on 2014-10-09 12:05:07 PM

    Hal, you comment about ATB Financial is outdated and wrong. ATB changed their policy over a year ago. So glad your keeping abreast of the changes in the mortgage market place, your clients must surely appreciate it
    http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/08/atb-dumps-posted-mortgage-rates.html

  • Sarah on 2014-10-09 12:09:19 PM

    I think the problem lies in the wording of the contract then - specify when each term to end early applies, not an either/or situation! If you are always going to charge the higher of the two, then say that!

  • Proudbanker on 2014-10-09 3:14:22 PM

    I personally ensure all clients know of
    the advantage of having the 5 year closed variable rate mortgage. It's proven over and over it's the better rate to go with. HOWEVER, some client's refuse to understand the VIRM and therefore go with the fixed 5 year. Even after numerous conversations of asking if they plan on paying out prior to their maturity, the clients always say NO. Now when clients decide that something comes up....ie moving to Haiti and opening an orphanage...now they want to break their term and are crying that the Big Banks are penalizing them. Shame on them. While my name is Proudbanker...I worked for one of the Big 5 and now have my own company as a mortgage broker. So take it from me, I see both sides CLEARLY.

  • Leo on 2014-10-09 3:35:31 PM

    A deal, is a deal, is a deal. Read your contracts, know your exist options. or do not accept the terms. End of Story.

  • Ron Butler on 2014-10-09 3:53:18 PM

    Proudbanker and Leo, if you two are mortgage brokers I wish you had the guts to put your full names on these posts because consumers would love to know who to avoid.

    "read your contracts" "they signed their commitments" the consumer is not against reading their contracts but the consumer wants plain language, simple to calculate, easy to understand documents. Let's be real, a mortgage is a product most consumers MUST use if they want to buy a home so why can't the key penalty clauses be easier to understand and simpler to calculate.

    Don't tell me "that's what the lawyer is for" 99% of lawyers could never figure out or even suggest they could really estimate the penalty on the 9 paragraph 3 future input calculations that appear on these clauses.

    Do not defend the indefensible: the consumer needs easier to understand penalty clauses that let them clearly understand that IRD will likely equal 4.00% of the mortgage balance.

  • Hal on 2014-10-09 4:33:25 PM

    Jon, Are you an ATB employee? Did I touch a nerve there? Policy may have changed, but the penalties have not. I have 2 cases in the past year which have not adhered to the "new policy". ATB gives out one number over the phone, and the second higher number comes in writing later. Nice try Jon.

  • Jon on 2014-10-09 5:39:50 PM

    Hal, I do work for ATB & know from experience that the new policy has changed, of course the penalty has a chance of changing up as well as down as its based on the posted rate which are no longer inflated. So you point about the "new policy" is untrue. So NICE try, keep sending your clients to a lender with inflated posted rates.

  • tim on 2014-10-10 10:40:13 AM

    Proudbanker.... you don't know what you are talking about, and you are off-topic. And you seem to think brokers can increase a clients rate to earn more commission... this does not happen... we can reduce the rate by spending our commission. Nobody is complaining about an IRD penalty..... The rip off is doing the IRD calculations using the posted rate. Client is paying a rate of 3% .... but the penalty is calculated using 4.79%. Pleeeeease. Banks send out renewals with the posted rates, and if the suckers sign and return the renewal, they are stuck with posted rate. A true rip-off preying on the uninformed. You proud bankers really stick it to the clients... and you know better... but you blame the client for not reading a 27 page disclosure of legal jargon... SHAME... clients need brokers to protect them from the greed and PRIDE of bankers. I happen to like the banks because they staff them with flunkies who don't know their arses from a hole in the ground, and they end up in my office out of frustration, where we can truly take good care of the clients interests.
    Proudbanker... where do your loyalties lie? We know it is not with the clients.

  • J G on 2014-10-10 10:44:23 AM

    Tim - I am a fellow broker.

    I hate to tell you but there are lenders who offer higher commissions for higher rates.

    By your rant above, it appears you do not act this way, which is good as neither do I. I prefer to act in the best interests of the client at all times.

    Examples of just a couple of lenders who offer higher commissions for higher rates, Scotia and RMG. I am sure there are others.

  • tim on 2014-10-10 11:57:53 AM

    Gratify yourself any way you like, by jacking the rate to make an extra buck, but the banks try to make you feel like they are doing you a HUGE favour by discounting from the posted rate. Brokers were once vilified or charging high rates, and fees, but the tables have turned. If a client goes to a broker and gets a high rate with high fees, it is usually their own doing..... bad credit, unverifiable income etc etc. If they deserve better rates due to clean credit, equity, and responsible financial habits, they will get the best rates an terms.
    ..... lost focus for a second there ... Posted rate is a joke and a new way for the banks to gouge the clients. If they want to use the Posted rate in the penalty calculation, at the very least they should be comparing the rate to the current posted rate.
    To me, this is all good news, as the public are becoming more informed, and are becoming smarter, and are using brokers more and more. Keep the bad news coming.

  • J G on 2014-10-10 12:03:04 PM

    Hi Tim - if that was directed at me, I don't jack the rate.

    I find if you do well by the client, you get more deals, more deals equals higher income anyways. Focusing on deals as a deal by deal basis is a waste.

    Back on topic, as a broker we should be educating our clients on good and bad of any deal they may be signing. As long as they understand and proper disclosure is given then all should be good.

    I agree that the way banks charge their IRD rates is ridiculous and not disclosed properly to clients, but in some cases you have to use the banks. Again - disclose and ensure they understand the full ramifications.

  • tim on 2014-10-10 1:41:43 PM

    JG ... not directed at you.. sorry, no offense intended, but you are indeed correct, if you don't give the clients the best advice and service, they will likely not come back to you.
    Another point... disclosure.... most people do not have a professional understanding of the mortgage terminology, and the bank uses this to their advantage... I would like to see any banker read and explain the fine print.... even lawyers struggle with this. LEO ... your obtuse opinion is too simple ... it is not cut and dried as you imply. This is not rocket science, but I would liken it to a Rubics Cube.... easy for some, but impossible for others.

  • Joe on 2014-10-11 2:13:44 AM

    Its funny how everyone agrees to the terms of the contract when they want the money but don't agree to them when they want out. So now we all stand in line and ask for exceptions.

    Ignorance and stupidity is not a defense. Pay a lawyer to look over the papers and if you don't agree with the terms don't take the money but don't cry after the fact.

    The bank did nothing wrong.

  • Omer Quenneville on 2014-10-11 2:24:37 AM

    What is with some of you. No one is disputing the contract. What they are disputing is the scare tactics used to get people to sign a 5 year fixed contract without explain anything. Joe, if you are a mortgage broker don't be so afraid to post your complete name so people can choose not to deal with you. Your buyer beware attitude sucks and is a discredit to the profession. TD wasn't wrong for enforcing their contract. They were wrong much earlier in the process, when they didn't take the time to explain it to them. Ask anyone that has a TD mortgage if they know it is registered as a collateral charge and see how many know.

  • Omer Quenneville on 2014-10-11 2:25:01 AM

    What is with some of you. No one is disputing the contract. What they are disputing is the scare tactics used to get people to sign a 5 year fixed contract without explain anything. Joe, if you are a mortgage broker don't be so afraid to post your complete name so people can choose not to deal with you. Your buyer beware attitude sucks and is a discredit to the profession. TD wasn't wrong for enforcing their contract. They were wrong much earlier in the process, when they didn't take the time to explain it to them. Ask anyone that has a TD mortgage if they know it is registered as a collateral charge and see how many know.

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