Investigating how significant a role advertisement played in the recent mortgage crisis, a government agency warned hundreds of mortgage brokers and lenders as well as media outlets about deceiving the public.
The Federal Trade Commission on Tuesday warned that some of the ads for home mortgages on Web sites, newspapers, magazines, direct mail, and unsolicited e-mail and faxes may violate federal law.
"Home ownership is the American dream, but it can become a nightmare for consumers who don't have the information they need to understand the terms of their mortgage" Lydia Parnes, director of the FTC's Bureau of Consumer Protection, said in a statement.
More than 200 advertisers and media outlets were warned that some mortgage ads are potentially deceptive or in violation of the Truth in Lending Act. The ads, including some in Spanish, were identified in June during a nationwide review focused on claims for very low monthly payment amounts or interest rates, without adequate disclosure of other important loan terms.
Letters to advertisers are advising them to review their ads, and to read business and consumer education materials on the FTC's Web site to learn about relevant laws and requirements.
Letters to media outlets are advising them about the potentially deceptive advertising, with guidance on screening ads for questionable claims.
Lucy Morris, a senior attorney in the bureau, said a lot of the ads misrepresent the rate that consumers will pay if they get a mortgage.
"One of the things that tended to be a somewhat common feature was ads that tout a low rate very boldly, like 1 percent or 2 percent, and then don't explain that that's just an introductory or teaser rate and don't tell you clearly what your annual percentage rate is," said Morris.
The deceptive ads the commission found aired on TV and radio. But some of the worst abuses were in direct mailings or on the Internet.
In some egregious cases the FTC has begun full scale investigations. It would not name the targeted companies.
Morris said one area of interest to the commission is the disclosure statement – typically read on air at breakneck speed.
Advertisers have an obligation to make sure listeners understand the ads they run, and ads read to quickly don't meet that obligation.
"If it's a print ad and you can't read the fine print; or if it's a TV or radio ad with rapid disclosure that you can't understand, then that's not going to suffice," said Morris.
The FTC's actions come at a time of heightened concern about the way mortgages are marketed.
Mortgage Defaults Rise
According to the Mortgage Bankers Association of America, a record number of people started the foreclosure process in the second quarter. The rate of loans entering the foreclosure process was 0.65 percent vs. 0.43 percent in the same period a year ago.
Critics link the rise in defaults to too many lenders giving mortgages to people who couldn't afford them and didn't understand what they were getting.
Josh Nasser of the Center for Responsible Lending says federal officials were lax about what was happening.
"As the market was heating up and more brokers and lenders were trying to get a piece of the pie, the advertising became more aggressive. The FTC is far too late. We're glad they're tuned in but they're far too late," Nasser said.
Late or not, FTC officials say they're now ready to address the problem. Options include court injunctions barring violators from running deceptive ads, and suing for damages on behalf of deceived borrowers.
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.