FTC Warning: Mortgage Ads May Be Deceptive

Wednesday, September 12, 2007

The Federal Trade Commission warns that some home mortgage ads currently appearing in Web sites, newspapers, magazines, direct mail, and unsolicited e-mail and faxes contain claims that may violate federal law.

“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. “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.”

The agency has identified hundreds of mortgage ads that are potentially deceptive or in violation of the Truth in Lending Act. For example, some ads touted rates as low as “1%” but failed to disclose adequately:

that the stated rate was a “payment rate” – not the interest rate – that applied only during the loan’s initial period;

that low advertised payments applied for only a short period; and

the loan’s Annual Percentage Rate, the uniform measure of the cost of credit that enables consumers to shop for and compare mortgage offerings.

Some ads promoted only incredibly low monthly payments but failed to disclose adequately the terms of repayment, including payment increases and a final balloon payment.

For more information on how to recognize a deceptive mortgage ad, read the FTC’s Deceptive Mortgage Ads: What They Say; What They Leave Out.