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.”

A title company that claimed to maintain “physical, electronic and procedural safeguards” to protect its customers confidential financial information, but instead tossed home loan applications into an open dumpster, has agreed to settle Federal Trade Commission (FTC) charges that it violated federal laws. The settlement with Kansas City, Kansas-based Nations Holding Company, requires that the company establish and maintain a comprehensive information security program that includes administrative, technical, and physical safeguards. The settlement also requires the company to obtain–-every two years for the next 20 years–an audit from a qualified, independent, third-party professional that confirms that the company’s security program meets the standards of the order.

Nations Holding Company is privately held. It provides real estate services in 44 states, and its subsidiary, Nations Title Agency, provides a variety of services in connection with financing home purchases and refinancing existing home mortgages. As we all know, the careless handling of consumers’ sensitive financial information is an open invitation to identity thieves who regularly troll our trash for documents that are ultimately used in real estate fraud schemes.

The FTC charged that Nations Holding Company’s failure to provide reasonable and appropriate security to protect its customers information violates the FTC’s Safeguards Rule, which requires financial institutions to take appropriate measures to protect customer information. The complaint also alleged that the company’s privacy policy claims were deceptive because of these failures, which is in violation of the FTC’s Privacy Rule and the FTC Act. The Privacy Rule, among other things, requires financial institutions to disclose accurately the manner in which they safeguard customer information. The FTC Act prohibits unfair or deceptive practices.

I’m pleased to announce that FlippingFrenzy.com has joined a group of federal, state, and local government agencies and national consumer advocacy organizations to launch the 8th Annual National Consumer Protection Week (NCPW), February 5-11, 2006. NCPW empowers consumers by highlighting current consumer protection and education efforts in the fight against fraud in communities across the United States and elsewhere.

According to a recent survey by the Federal Trade Commission (FTC), nearly 25 million Americans–a whopping 11.2 percent of the adult population–experiences consumer fraud each and every year, and if you’re involved in a real estate transaction, the percentage might even be higher than that. If you’re interested in boosting your marketplace savvy, I encourage you to visit www.consumer.gov/ncpw, where you can take part in the Grand Scam Challenge.

Consumer protection is the name of the game. When your money’s at stake, you want a grand slam, not a grand scam. Whether you’re investing in real estate, buying or selling products on an Internet auction, or looking for a home loan, it pays to know how to spot a scam. Tips on a wide range of these and other consumer protection issues are available at www.consumer.gov/ncpw.

National organizers of this year’s NCPW are the Federal Trade Commission (FTC), the Federal Citizen’s Information Center (FCIC), the U.S. Postal Service (USPS), the U.S. Postal Inspection Service (USPIS), the Federal Communications Commission (FCC), the National Association of Consumer Agency Administrators (NACAA), the National Consumers League (NCL), AARP, the Better Business Bureau (BBB), Call for Action, the Consumer Federation of America (CFA), the National Association of Attorneys General (NAAG), and the NATIONAL ASSOCIATION OF REALTORS (NAR).

FlippingFrenzy.com is proud to share the messages of this year’s National Consumer Protection Week campaign. We plan to continue to provide consumers and professionals alike with the tools they need to recognize and avoid real estate-related fraud and deception in the marketplace.

For more information about National Consumer Protection Week, visit www.consumer.gov/ncpw.

Far West Credit, Inc., a Salt Lake City, UT-based company that creates consumer credit reports for use by mortgage industry professionals, has agreed to pay a $120,000.00 civil fine to settle Federal Trade Commission (FTC) charges that it recently violated the Fair Credit Reporting Act and the FTC Act. Far West Credit, which now operates as LandAmerica Lender Services, was purchased in February of 2004 by Info1 Holding Company, Inc., a subsidiary of LandAmerica Financial Group, Inc. (NYSE: LFG).

Background: Far West Credit/LandAmerica Lender Services buys individual consumer credit reports from all of the major credit reporting agencies, and then merges the reporting agencies information about a particular consumer into one all-encompassing report that it provides to mortgage lenders. According to the FTC, if there is insufficient information about a particular consumer’s credit worthiness from the major credit reporting agencies, Far West/LandAmerica Lender Services attempts to collect ‘additional information’ to demonstrate the consumer’s credit worthiness. That ‘additional information,’ which comes from cable companies, utilities, rent-to-own businesses, and insurance companies–all of whom do not report on a normal basis to the credit bureaus–is added by Far West/LandAmerica Lender Services to reports they prepare for their mortgage industry-related clients.

At issue with the FTC was this: Far West/LandAmerica Lender Services provided erroneous consumer reports to Keystone Mortgage and Investment Company, Inc., a Phoenix, AZ-based home lender, which in turn approved consumer mortgage loans insured by the Fair Housing Administration (FHA) of the U. S. Department of Housing and Urban Development, and that otherwise would not have been approved.

Terms of the Settlement: In addition to paying the $120,000.00 civil fine, Far West now has to have in place reasonable procedures to assure the maximum possible accuracy of information in the consumer reports it prepares, and must adhere to strict record keeping and reporting requirements that allow the FTC to monitor compliance.

Commentary: Here’s what’s really interesting about this case. Keystone had an interest in making the loans. So much so that Keystone’s own employees provided documentation of borrowers’ credit accounts to Far West/LandAmerica Lender Services to be used in creating consumer reports for those borrowers (Note that Far West/LandAmerica Lender Services didn’t even bother to gather the information itself… rather, it relied on its own customer–Keystone–to gather the information for them… boy, does anyone else see a massive conflict of interest here). Anyway, the FTC charges that the information provided by Keystone’s employees was not verified by Far West/LandAmerica Lender Services, and that Keystone of course provided false information for many of its customers. For example, according to the FTC, in many cases, Keystone provided documentation about accounts with utility and cable companies that didn’t even service the areas where the loan applicant lived.

And what about Keystone Mortgage and Investment Company? Well, according to an article that ran in the January 18th edition of the Salt Lake Tribune, Keystone Mortgage and Investment was audited last year by HUD, who found a pattern of fraudulent loans at the Phoenix-based company. A HUD spokesman told the Tribune that HUD is “unable to disclose anything about any actions HUD has taken against Keystone,” a company which is now apparently no longer in business.

It’s clear from the Far West/LandAmerica Lender Services FTC settlement that real estate-related fraud comes in many shapes and sizes. Long gone are the days when it was just the consumer who tried to get something past their mortgage lender. More and more we’re seeing mortgage industry professionals, i.e., the Keystone’s of the world, and their vendors, i.e., the Far West/LandAmerica Lender Services types, conspiring to beef up consumer credit scores. The problem of course is that for every one FTC settlement like Far West/LandAmerica Lender Services’, there are thousands of other instances where something similar is happening but no one seems to care enough to stop it.

Always remember and don’t ever forget, committing real estate fraud is no accident, and neither should stopping it!