Federal regulators on Monday announced
investigations into possible violations of the law by mortgage
lenders and brokers suspected of false or deceptive advertising.
The Federal Trade Commission and the Consumer Financial Protection Bureau said Monday that they had opened 19 investigations after a joint "sweep" of more than 800 ads. They also issued 32 warning letters to lenders and brokers.
"Misrepresentations in advertising for mortgage products pose a significant risk of harm to consumers because they can confuse and mislead consumers when they are making one of the biggest financial transactions of their lives," said Kent Markus, the consumer bureau's assistant director of enforcement. "Those problems can be particularly significant for veterans and older Americans."
Regulators reviewed mortgage ads in newspapers, direct mail and on the Internet - including on Facebook - for violations of the "2011 Mortgage Acts and Practices - Advertising Rule," which prohibits unfair or misleading advertising for any mortgage credit product, from costs and payments to interest rates and fees. Advertisers that violate the rule could face fines.
"Mortgage advertisers are on notice that they have to comply with the law," said Thomas Pahl, an assistant director in the FTC's division of financial practices.
The agencies did not release the names of the companies that received letters or that are under investigation.
Some of the ads boasted official-looking seals, logos or abbreviations that made it look as if they were affiliated with the Department of Veterans Affairs, the Federal Housing Administration or the Department of Housing and Urban Development, regulators said.
Other ads offered "fixed" low rates without disclosing the true terms of the loans, or contained mock checks that misled consumers into thinking they had been preapproved to receive specific amounts of money if they refinanced their homes or took out reverse mortgages, regulators said.
Reverse mortgages allow homeowners who are 62 or older to receive money from lenders by borrowing against the equity in their homes. They are popular with older or retired homeowners because the arrangement allows them to stay in their homes and receive monthly payments or lump sums. The loans must be paid off if the homeowners move, sell the homes or die.
Regulators said some ads for reverse mortgages wrongly implied that homeowners wouldn't have to make any payments. Such loans typically require homeowners to continue regular tax and insurance payments, or risk default.
Consumer advocates welcomed regulators' actions Monday.
"It's good news that they are watching and looking into things and hopefully stopping them before they become endemic, especially because so often these kinds of predatory products are targeted at military personnel and the elderly," said Kathleen Day, a spokeswoman for the Center for Responsible Lending, a nonprofit advocacy group based in Durham, N.C.
"Often they're on a fixed income or don't have a lot of discretionary spending, and may be more vulnerable to a come-on that promises an easy answer," Day said.
Misleading advertising has been a problem in the mortgage industry for decades, said Don Frommeyer, the president of NAMB - the Association of Mortgage Professionals, a trade association headquartered in Plano, Texas.
"They need to clean it up, because there's too much confusion," Frommeyer said. "When all is said and done, it should get back to a mortgage loan is a mortgage loan is a mortgage loan, and everybody should be licensed and have to follow the same rules."
The investigations and warning letters will be "a good eye- opener for the consumer," he said.
"If it sounds too good to be true, it usually is," he said. "You just need people to start looking at these things with a grain of salt."
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