by Broderick Perkins
(8/1/2011) A new federal rule targets mortgage advertisers who attempt to
pull the wool over consumers' eyes when they shop for a home loan.
Effective August 19, 2011 a federal truth-in-lending law strengthens bans
against deceptive advertising offered by mortgage lenders,
brokers, and servicers; real estate agents and brokers; advertising
agencies; home builders; lead generators; rate aggregators; and others,
including on- and off-line publications.
The Federal Trade Commission (FTC) rule does not cover
banks, thrifts, federal credit unions, and other entities not regulated by
For years, the FTC has been at war with
outfits using deceptive mortgage advertisements.
As recently as June this year, the agency sent hundreds of advertisers
and media outlets warning letters that some mortgage ads are either
potentially deceptive or in violation of the Truth in Lending Act.
The massive missive mailing came following a nationwide review of claims
for low monthly mortgage payments or low, low interest rates, without
adequate disclosure of other important loan terms.
Some ads claimed rates as low as 1 percent, but failed to disclose
That the stated rate was a "payment rate," not the interest
That the payment rate applied only during the loan's brief initial
The loan's Annual Percentage Rate (APR), the uniform measure of
the cost of credit that enables consumers to shop for and compare mortgage
The fraudulent behavior is not unlike actions used to push toxic mortgages that became the scourge of the economy
and helped plunge the nation into recession, the effects of which are still
Since 1995, the FTC has busted dozens of mortgage operations for a host
of infractions, including:
Claims for loans with specified terms, when no loans with those
terms were available from the advertiser.
Misrepresentations that rates were fixed for the full term of the
Misrepresentations about, or failure to adequately disclose, the
existence of a prepayment penalty or large balloon payment due at the end of
Claims of mortgage payment amounts that failed to include loan
fees and closing costs of the kind typically included in loan amounts,
Failure to disclose adequately that the advertiser, not the
consumer's current lender, was offering the mortgage.
False or misleading claims that consumers were "pre-approved" for
The new rules list 19 examples of
prohibited deceptive claims including misrepresentations about:
The existence, nature, or amount of fees or costs to the consumer
associated with the mortgage and other products sold in conjunction with the
mortgage, including credit insurance and credit disability insurance.
The terms, amounts, payments, or other requirements relating to
taxes or insurance associated with the mortgage.
The variability of interest, payments, or other terms of the
The type of mortgage offered.
The source of an advertisement or other commercial
The consumer's ability or likelihood of obtaining a refinancing or
modification of a mortgage or any of its
New rules also address misrepresentations involving pre-payment
penalties; interest rate and payment comparisons; affiliation with
government agencies and a consumers likelihood or ability to obtain a home
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