Markets Wired

The Federal Trade Commission is warning mortgage brokers and lenders, and media outlets that carry their advertisements for home mortgages, that some of the advertising claims currently appearing in Web sites, newspapers, magazines, direct mail, and unsolicited e-mail and faxes may violate federal law.

“Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story – for example, that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “Home ownership is the American dream, but it can become a nightmare for consumers who don’t have the information they need to understand the terms of their mortgage.”

In warning letters, the agency is advising more than 200 advertisers and media outlets that some mortgage ads are potentially deceptive or in violation of the Truth in Lending Act. The ads, including some in Spanish, were identified in June during a nationwide review focused on claims for very low monthly payment amounts or interest rates, without adequate disclosure of other important loan terms. For example, some ads touted rates as low as “1%” but failed to disclose adequately:

• that the stated rate was a “payment rate” – not the interest rate – that applied only during the loan’s initial period;
• that low advertised payments applied for only a short period; and
• the loan’s Annual Percentage Rate, the uniform measure of the cost of credit that enables consumers to shop for and compare mortgage offerings.

Some ads promoted only incredibly low monthly payments but failed to disclose adequately the terms of repayment, including payment increases and a final balloon payment.

Letters to advertisers are advising them to review their ads, and to read business and consumer education materials on the FTC’s Web site to learn about relevant laws and requirements. Letters to media outlets are advising them about the potentially deceptive advertising, with guidance on screening ads for questionable claims.

During the past decade, the FTC has brought 21 actions against companies in the mortgage lending industry, focusing in particular on the subprime market. Several of these cases have resulted in large monetary judgments, with courts collectively ordering that more than $320 million be returned to consumers. These enforcement actions have targeted deceptive or unfair practices in all stages of mortgage lending, from advertising and marketing through loan servicing, by mortgage lenders, brokers, and loan servicers.

To help consumers recognize deceptive mortgage ads, the Federal Trade Commission has created a Consumer Alert, “Deceptive Mortgage Ads: What They Say; What They Leave Out,” available at www.ftc.gov.

A sample FTC warning letter and the FTC’s new Consumer Alert, “Deceptive Mortgage Ads: What They Say; What They Leave Out,” are available from the FTC’s website at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent deceptive and unfair practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad.