FTC Says Lack of Disclosure on Rates May Violate Law
By Alan Zibel
Associated Press
Wednesday, September 12, 2007
The Federal Trade Commission has warned more than 200 companies about "potentially deceptive" mortgage advertisements that could give borrowers false impressions of the cost of home loans.
The agency said yesterday that ads in newspapers and magazines, online, and in the mail "may violate federal law" by giving a deceptive picture of mortgage terms. It sent the warning letters to mortgage brokers, lenders and media outlets.
"Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story," Lydia Parnes, director of the FTC's Bureau of Consumer Protection, said in a statement.
The FTC declined to make available a list of the companies it warned because it has not concluded that the companies are breaking the law.
Some advertisements, the FTC said, highlighted mortgage rates as low as 1 percent but did not inform consumers that the rates applied for short "teaser" periods and could rise substantially.
Experts say this kind of advertising is one reason consumers signed up for subprime loans, given to borrowers with weak credit, whose interest rates reset upward after an introductory period.
While some people bet that they could refinance their loans before the rates reset, others were not informed adequately of the risks, experts said.
Although numerous lenders have closed in recent months as the mortgage market's problems have unfolded, advertisements reminiscent of the real estate boom can still easily be found on the Internet.
One Internet advertiser, LendingTree, owned by IAC/InterActiveCorp, tells customers they can borrow "$200,000 for Only $938/Month."
Only by clicking on the ad, then clicking to another page, does a potential borrower come up with a page of disclaimers, which note that "you may not be matched with the lender making a particular offer."
LendingTree has not received a letter from the FTC, spokeswoman Allison Vail said yesterday. The company thinks the terms of the mortgages advertised are adequately disclosed, she said.
While Lucy Morris, a senior FTC consumer protection lawyer, declined to comment on specific companies, she said disclosures of mortgage terms have to be clear.
"It's not enough to bury important information in unreadable fine print," she said.
Mortgage and financial Web sites are among the main sources of online ad revenue. LowerMyBills parent Experian spent nearly $41 million on online ads last month, according to Nielsen-NetRatings. IAC/InterActiveCorp spent $35.5 million, while Countrywide Financial spent $35.4 million.
The FTC has detailed guidelines on how mortgage lenders should advertise 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.
Morris said media outlets are not liable for deceptive advertising but are being encouraged to screen ads to protect readers and viewers.
The government's action comes as regulators heighten scrutiny of mortgage lending. Federal Reserve Chairman Ben S. Bernanke said in hearings on Capitol Hill over the summer that the Fed would propose changes to federal rules on mortgage marketing by year-end.
Those changes are needed, Bernanke said, to address concerns about advertisements "that may be incomplete or misleading and to require lenders to provide mortgage disclosures more quickly."
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