Mortgage and real estate come-ons have been around since the dawn civilization.
Today, they masquerade as government-affiliated, they lie about interest rates and costs, and they lure you in with cash promises that fail to materialize.
The federal watchdog for consumers buying financial services has begun to take a bite out of that crime, especially particularly heinous forms of false advertising that target older Americans and military veterans.
The Consumer Financial Protection Bureau (CFPB) , along with the Federal Trade Commission (FTC) issued warning letters to a dozen mortgage lenders and brokers demanding they clean up their act or pay the consequences.
Another six companies are under investigation for more serious violations of the 2011 Mortgage Acts and Practices – Advertising (MAP) rule.
MAP rule prohibits misleading claims concerning government affiliation, interest rates, fees, costs, payments associated with the loan, and the amount of cash or credit available to the consumer.
The CFPB and the FTC share oversight of MAP rules.
False advertising sweep
“Misrepresentations in mortgage products can deprive consumers of important information while making one of the biggest financial decisions of their lives,” said CFPB Director Richard Cordray.
“Baiting consumers with false ads to buy into mortgage products would be illegal. We will conduct a fair and rigorous investigation into these issues and will take appropriate action for any violations we find,” Cordray added.
The warning letters and investigations stem from a joint sweep to inspect 800 randomly selected mortgage-related ads, including ads for mortgage loans, refinancing, and reverse mortgages. The agencies examined ads in newspapers, on the Internet , and in mail solicitations. Consumer complaints also led to the agencies examining other ads.
The CFPB focused on mortgage advertisements, particularly ads that targeted older Americans or veterans. The FTC examined ads by homebuilders, realtors, and lead generators.
The FTC issued its own warning letters to about a dozen companies and will continue its own investigations of even more companies. It also offers some mock fake ads as examples of the lures MAP rule violators use.
False advertising violations
The sweep identified problems, such as:
• Potential misrepresentations about government affiliation: For example, some of the ads for mortgage products contained official-looking seals or logos, or have other characteristics that may be interpreted by consumers as indicating a government affiliation.
• Potentially inaccurate information about interest rates: For example, some ads promoted low rates that may have misled consumers about the terms of the product actually offered.
• Potentially misleading statements concerning the costs of reverse mortgages: For example, some ads for reverse mortgage products claimed that a consumer will have no payments in connection with the product, even though consumers with a reverse mortgage are commonly required to continue to make monthly or other periodic tax or insurance payments, and may risk default if the payments aren’t made.
• Potential misrepresentations about the amount of cash or credit available to a consumer: For example, some ads contained a mock check and/or suggested that a consumer has been pre-approved to receive a certain amount of money in connection with refinancing their mortgage or taking out a reverse mortgage, when a number of additional steps would customarily need to be completed before the consumer would qualify for the loan.
The warning letters advise recipients to review advertising and make sure it doesn’t violate federal truth-in-lending laws specific to the industry.
• CFPB sample warning letter to advertisers targeting older Americans.
• CFPB sample warning letter to advertisers targeting military personnel.
False advertising red flags
Consumer advice from Assistant Director for the CFPB Office of Service member Affairs Holly Petraeus and Assistant Director for the CFPB Office for Older Americans Skip Humphrey says be suspicious of ads with:
- Official-looking seals or logos that imply some kind of government status, for example making you think they come from the VA or HUD. Although government agencies do guarantee some loans, they are not involved in the actual lending or advertising of loans.
- Promises of amazingly low rates – which may turn out in the fine print only be in effect for a short period and then will readjust to a higher amount.
- Promises that a reverse mortgage will let you stay in your home payment-free. Typically, borrowers with reverse mortgages still have to keep up with tax and insurance payments – and will most likely lose their homes if they don’t.
- Announcements of “pre-approval” and large amounts of cash or credit available to you. Typically, there’s no guarantee that you will be approved for a loan, or the size of the loan, until you go through a standard qualification process.