Spotting Dubious Online Mortgage Ads
Author: Andrew Carey

There's no question the mortgage industry has changed
dramatically since the beginning of 2007. Subprime mortgages are
now as rare as gold, and credit requirements have become much
stricter. Alt-A mortgages too are hard to come by. Many large
mortgage providers have seen profits markedly down, and some
have even closed their doors. And sadly, a lot of homeowners are
now struggling to pay their adjustable-rate mortgages and keep
their homes.

But no matter how much an environment changes, some things stay
the same. Those outrageous advertisements offering unbelievable
home loans are still being used by a minority of mortgages
companies to draw in new customers, even as their previous
customers are being foreclosed on because they were sold a loan
they didn't expect or understand.

The Ad Constant

Such ads are rarer than they were a year ago, because quite a
few of the companies which depended on them for bringing in new
business have moved on to more profitable industries or simply
shut up shop. But they can still be found, lurking on websites
big and small, and tempting desperate homeowners into taking the
bait.

Fortunately, such ads are usually easy to detect. Many use
interest rates or monthly payment amounts to snare and impress
readers who might otherwise see little gain from such a product.
More importantly, these ads use numbers which are ridiculously
agreeable, and at face value seem to include very few
requirements.

Warning Signs

But promises of a $500,000 mortgage for a few hundred dollars a
month should have you running the other way. Why? Because these
kinds of loans are invariably driven by adjustable rates, depend
on an astonishingly low teaser rate, and will result in a huge
jump in minimum monthly payments once that teaser rate has
expired after a year or two.

One way people determine whether an ad is shady or not is to
scan for fine-print at the bottom of the promotional message.
The assumption is that if there's a lot of tiny conditional text
there are catches, whereas no or very little fine-print means an
honest deal.

But this assumption is seriously flawed. The nuances of
advertising regulations allow advertisers to side-step the
traditional checks and balances many people are used to. Look
carefully at a mortgage advert on the web and you might see
minimal fine-print like "some restrictions apply". But the exact
details of those restrictions aren't given, at least not on the
same page where the ad appears. Instead they're buried at the
bottom of the target page - the page you are taken to once you
click on the advert itself.

Additionally, the final fine-print might not deal with the
technical details of the loan as you would hope. Some only cover
aspects like teaser rates and prepayment penalties in a vague
and noncommittal way. Others don't mention them at all.

One other important development in mortgage advertising is the
use of the term "fixed rate". Since the subprime shakeout,
adjustable rate mortgages have become vilified and viewed as
dangerous by many. Sometimes this reputation is unjust. But
regardless, it has posed a problem to deceptive advertisers.
Their solution has been to bend the truth about the product
they're offering and substitute "adjustable" for "fixed". In
their eyes the mortgage is fixed because the payments won't
change for the first year or so that the teaser rate is in
place. But they deliberately don't acknowledge that after the
teaser rate has expired the payments will start shifting, often
upwards.

New Trends, Same Old Risks

As the mortgage market has stuttered, law makers and industry
leaders have stepped in to curb bad business practices. Teaser
rates and prepayment penalties, which have been the undoing of
many unsuspecting homeowners, are now frowned upon. And reports
of dubious mortgage origination practices like exaggerated
income statements or bait-and-switch offers are rigorously
investigated.

Some argue that given these developments such questionable
practices must no longer be possible. But sadly, they are. No
matter how the mortgage climate changes there will always be
companies who choose to use advertising in questionable ways.
Worse still are the unscrupulous small-time opportunists who try
to fly below the radar, or who operate to make a quick buck from
unsuspecting customers and then slink away into the night.

Companies like America's Lending Partners have tackled the
problem of dubious ads head-on by trying to educate consumers
that some mortgage ads can be harmful to their financial health.
They placed an ad on their home page promising a $490,000
mortgage for only $99 per month. But when someone clicks on that
ad they are told "Don't Believe Everything You Read!", and are
warned as to the dangerous nature of such promotions. The
strategy has yielded some interesting calls into their customer
service department from small-time brokers and loan officers who
had hoped to ensnare unsuspecting homeowners with an obviously
toxic mortgage.

Conclusion

When shopping for something as major as a home loan it's
important you approach the process methodically. When it comes
to advertising, don't jump at numbers or be sold by a flashy
message alone. Look at the fine-print and check the credentials
of the company making the offer. Educate yourself and do your
research. The time invested will probably save you thousands of
dollars down the road.


About The Author: Andrew Carey works at America's Lending
Partners, a leading online mortgage business that has been
providing homeowners and home buyers with a variety of resources
and mortgage services since 1999. For more information please
visit: http://www.LendingPartners.com