FTC Issues Warning on Mortgage Lenders’ Ads
The Federal Trade Commission (FTC) 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-related 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. Home ownership is the American dream, but it should not become a nightmare for consumers who do not have the information they need to understand the terms of their mortgage!
In warning letters, the FTC 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 recently identified 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:
- …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
- …the loan’s Annual Percentage Rate (APR), 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 adequately disclose the terms of repayment, including payment increases and a final balloon payment.
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.”