Oct 21, 2007

FTC Warns Against Deceptive Mortgage Ads

Like many homeowners, I get frequent, important looking letters in the mail, filled with bold and italicized print and exclamation marks, telling me that I'm paying way too much for a mortgage and promising a radical reduction in my monthly payment if I refinance! Usually, I just resentfully shred these letters (the wasted paper!), but when I do peruse them, I usually see their limits: a low interest rate that only lasts one month, or artificially high fees.

Good thing I'm quite happy with the mortgage I've got. But the same sort of misleading hype gets directed at people looking to buy their first home, some of whom are naively grateful for a mortgage that will "help" them. You've heard the ads: "We specialize in bad credit!" or "We're the friendly ones!" The recent subprime mortgage crisis hasn't slowed these folks down one bit.

Don't believe the ads - at least, not without follow-up. Many homeowners now in dire financial condition got there because they didn't understand the terms of their mortgage. Some were misled; others just neglected to read the fine print. Fortunately, you can avoid this. The Federal Trade Commission recently released a plain English explanation of how to interpret deceptive mortgage ads. Every consumer getting a mortgage--or needing to refinance--should understand the terms it discusses. Here are a few other tips:

Get it in writing. Talk is cheap. If someone verbally promises you favorable loan terms based on what's in an ad, they shouldn't have a problem backing them up in writing.

Customize the package. Sometimes great loan terms are legitimate--but the lender will tell you that you don't qualify because you're not the "A+" borrower. Often that means your credit score isn't sky high. Make sure you know what the terms of any mortgage will be for your specific situation. (The best way, of course, is to get preapproved.)

Do your own comparison. With the easy accessibility of loan comparisons online, you don't have a good reason not to compare the seemingly amazing offer to what's already out there. And if the "too good to be true" offer seems worlds better than anything out there, it probably is too good to be true.

Don't sign anything you don't understand. Don't back down, even if someone is waiting and pressuring you, or says the issue isn't important. Just remember--they're not paying your mortgage, but if you sign without understanding, you will be.

Personally, I can't help but wish for more extreme measures against these deceptive letter writers. For example, there's a whole slew of people dedicated to catching African scam artists who send fraudulent letters promising riches if the recipient will send just a few thousand dollars first. (Though, I must admit, I do enjoy watching the videos these scam-baiters have manipulated these trusting folks into making.) While most of us can easily recognize these scams and have all been warned to avoid them, homeowners haven't always received the same help when deceived by deceptive mortgage ads. Thankfully, the FTC is doing something about that too, sending warning letters about potentially deceptive ads to over 200 mortgage companies.

To learn more about how to clean up your credit before you apply for mortgages, read Attorney Robin Leonard's Credit Repair (Nolo), now in its 8th edition.

Alayna Schroeder