The FTC remains busy on both the mortgage and loan modification fronts. After filing complaints and shuttering several loan modification shops in an action announced on April 6th, 2009, the FTC has issued a warning on deceptive mortgage advertisements. Deception has played a big role in current mortgage meltdown which probably has homeowners struggling with incomprehensible mortgages wondering why such a warning comes out about two years behind the times.
Still, the information is valuable in educating potential borrowers on how to detect a misleading mortgage advertisement. The essence of the warning covers the information that gets put into the ads as well as the information that gets left out. Typically, the information that the potential borrower sees is designed sell the mortgage using verbiage that conveys beneficial terms that may be short lived or illusory. When referring to rates, terms like “low fixed” and “very low” that are not defined may carry unseen surprises for the borrower. For instance, a “low fixed” or teaser rates may in fact be fixed only for an introductory period lasting as little as thirty days. “Very low” rates may pertain to either a payment rate or an interest rate. For the borrower, a very low interest rate is an advantage but if “very low” translates to a payment that doesn’t cover the monthly interest charges that same borrower may unknowingly be buying in to a negative amortization loan. The surprise comes when that borrower notices that, instead of decreasing each month, the balance on the mortgage keeps going up as the monthly payment shortage is tacked on to the balance. These principle increases don’t go on forever. At some point the loan will recast, meaning higher monthly payments for the borrower as the mortgage changes over to positive amortization. These types of mortgages are commonly listed as hardships when struggling borrowers apply to modify them due to payments that have suddenly gone out of reach.
Then there are the notices that appear to be either issued by the government or the borrower’s current mortgage company. Because loan details are considered to be in the public domain, predatory lenders can legally obtain borrowers’ mortgage information and act like their lender. In either case, it’s to the borrowers’ benefit to contact their current lender to see if the offer is legitimate.
Information omitted from advertisements can be equally dangerous for borrowers. Including the annual percentage rate (APR) in an ad allows for “apples to apples” comparisons between mortgages. When the APR is omitted, it’s usually for a reason. Most of the time the reason for the omission is that the lender doesn’t want an “apples to apples” comparison with other mortgages. Borrowers can avoid surprises by insisting on a payment schedule and terms for the life of the loan. Asking about impound accounts for property taxes and homeowners’ insurance can also help the borrower determine the monthly budget.
Most of what the FTC detailed in their warning is common sense thinking. Following the logic that if it’s too good to be true, it probably is, can go a long way toward keeping a borrower out of trouble. If you have questions about your mortgage or offers you have received on it, call The Feldman Law Center at ____-