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FTC Warns Some Mortgage Ads May Violate Law

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By Amy HoakRISMEDIA, Sept. 13, 2007-(MarketWatch)-Some of the mortgage advertisements currently appearing in Web sites, newspapers, magazines, direct mail and unsolicited e-mail and faxes may be violating federal law, and on Tuesday the Federal Trade Commission said it was sending warning letters to more than 200 advertisers and media outlets informing them of the possible violations.

Some of the claims made in the ads are “potentially deceptive,” or violating the Truth in Lending Act, according to a FTC news release. The advertisements were identified in June during a review of claims that touted very low monthly payments or interest rates without fully disclosing other important loan terms.

“Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story — for example, that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period,” said Lydia Parnes, director of the FTC’s Bureau of Consumer Protection, in the release.

“Homeownership 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.”

Some of the ads were for rates as low as 1%, but didn’t disclose that the stated rate was a “payment rate,” and not the interest rate, which applied only during an initial period, according to the release. Also not disclosed in some of these ads was the loan’s annual percentage rate, the uniform measure of the cost of credit that consumers can use to comparison shop for mortgages.

Other ads that promoted very low monthly payments failed to give adequate disclosure of payment increases or final balloon payments.

The letters sent to advertisers advised them to review their ads and read up on relevant laws and requirements. Media outlets were given guidance on screening ads for questionable claims.

The FTC said it brought 21 actions against companies in the mortgage lending industry over the past decade, with particular focus on the subprime market. Some of the cases resulted in monetary judgments, “with courts collectively ordering that more than $320 million be returned to consumers,” according to the release.

The actions targeted deceptive or unfair practices in various stages of the lending process — from advertising and marketing to loan servicing.

Amy Hoak is a MarketWatch reporter based in Chicago.

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