Mortgage Company Warnings Issued By FTC on Ads
The Federal Trade Commission (FTC) has warned more than 200 mortgage companies about “potentially deceptive” advertisements that could give borrowers a false impression of home loans and what they cost.
The FTC said Tuesday that ads in newspapers and magazines, online and in the mail “may violate federal law” by giving a deceptive picture of home mortgage terms.
It sent the warning letters to mortgage brokers, lenders and media.
“Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection.
The FTC says it has declined to make available a list of the specific home loan lender or broker groups it warned because it has not definitively concluded that the companies are breaking the law.
Lucy Morris, an FTC attorney, said the letters were sent to large companies and small ones. Media outlets are not liable for deceptive advertising, but are being encouraged to screen it to protect readers and viewers.
In addition, she said, the agency plans to investigate other companies for deceptive advertising practices.
Some advertisements, the FTC said, highlighted rates as low as 1 percent, but didn’t inform consumers that they often apply for a short, “teaser rate” period and can rise substantially.
Experts say this kind of advertising is one reason why home loan consumers - particularly the elderly, minorities and the poor - signed up for bad credit loans given to borrowers with weak credit that jump up to higher rates after a short introductory rate period.
While some people were betting that they could qualify for refinancing before the rates reset, others were not informed adequately of the risks.
The FTC has detailed guidelines on how mortgage lenders should advertise their products to comply with federal law. It said the ads, some of which were in Spanish, were identified in June as part of a nationwide review.
The action comes as regulators heighten scrutiny of mortgage lender activities amid soaring rates of default among subprime borrowers.
Federal Reserve Chairman Ben Bernanke said in hearings on Capitol Hill over the summer that the Fed would will propose changes to federal rules on mortgage marketing by year-end.
Those changes are needed, he said, to address concerns about advertisements “that may be incomplete or misleading … and to require lenders to provide mortgage disclosures more quickly.”
SOURCE: Associated Press / Forbes