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Advertising Do's & Don'ts

Direct mail can generate results and regulatory violations

Dec. 13, 2010 (revised Dec. 14)


The targeted nature of direct mail advertising and the ability to tailor each message to the loan prospect can provide a powerful lead-generating tool, according to one consulting firm -- which notes that the results are measurable. But direct mail advertisements, as well as ads through other media, are subject to state and federal laws, and many have recently prompted charges by state attorneys general and by federal agencies and regulators.

irect mail can replace generic advertising with advertising for specific products -- equity loans, refinances, reverse mortgages -- that best meet the needs of the recipient, whether an existing customer or a prospect. And, unlike with phone calls, you don't have to worry about antagonizing a recipient or violating the do-not-call list.

successful direct mail campaign, according to Brian King, president of Charlotte, N. C.-based management consulting firm Wisemar Inc., starts by establishing the goals of the initiative, such as increasing cross-sell ratios or generating more loans. It's also important, he says, to determine whether your direct mail campaign will be focused on existing customers or prospects or both.

Once the campaign's goals have been established, King says, prepare a compelling offer that will drive the consumer to action. Then create a detailed project plan with the various tasks and timelines.

"Effective internal communication prior to and during the direct mail campaign," he emphasizes in a Wisemar report on direct marketing, "is critical to make sure all necessary stakeholders are included and supportive of the project plan."

The target of your direct mail campaign should be segmented according to the offers and the characterizations of your target audiences, including whether they are existing customers or borrowers and their credit worthiness, King points out.

For home-equity loans and mortgages, he says, "There is significant property valuation data that can also be leveraged during the campaign as part of the segmentation process."

A bank client of Richmond, Va.-based One to One Direct, King points out, utilized demographic and credit data to successfully identify customers and prospects in the bank's market area that were likely candidates for its high value home equity products. With One to One Direct managing the marketing process, the bank tripled the size of its home equity portfolio while maintaining delinquency rates below industry averages.

Your processes and policies must be streamlined, with the initial focus on maximizing the response rate by promptly handling all calls and leads, King stresses.

"Successes and refinements in this area can also be useful in preparing for future campaigns," he explained.

Mortgage advertising, the Mortgage Bankers Association and Consumer Mortgage Coalition noted in a Nov. 12 letter to the Federal Trade commission, is regulated by the FTC, Federal Reserve, the Bureau of Consumer Financial Protection, home-equity line-of-credit rules, the Truth in Lending Act and its Regulation Z rules, and the Dodd-Frank Act.

"And, finally, there are also many state laws on advertising," they pointed out.

"All of the rules," they noted, "have the same purpose -- consumer protection -- so there is no benefit to rules that duplicate or, worse, contradict each other."

So they called for the implementation of one set of rules.

Wording that has brought regulators down on lenders has varied from incomplete or inadequate information to misleading information.

And sometimes in mortgage advertising, as explained by ING Direct officials, it's a matter of striking "a balance between simplifying the complexity of mortgages and meeting regulatory requirements, such as the Truth in Lending Act, that are continuously changing."

ING, they said, defending the lender from advertising disclosure questions raised in The New York Times by its Your Money columnist Ron Lieber, has "always taken steps to be open and transparent by removing the fine print and attempting to be as clear as possible in our advertising."

At issue was an advertising mailer that used the phrases "rate is subject to adjustment" and "interest rate may increase" rather than using the specific words "adjustable rate."

"The intent was to provide sufficient compelling information to prompt a customer to call for additional details," the company explained.

But the advertising content that has attracted the actions of regulators and other authorities is flagrant, with little question about violations of laws and rules. What these ads state is untrue or misleading.

(The following paragraphs have been modified since the story was originally published. Mortgage Daily incorrectly reported originally that the California Department of Financial Institutions had accused the company when it was in fact Washington's Department of Financial Institutions.)

California mortgage broker Paramount Equity Mortgage was accused by the Washington Department of Financial Institutions of running false and misleading radio ads, collecting fees it wasn't entitled to, giving borrowers incomplete disclosure documents, and letting unlicensed employees originate mortgage loans, among other issues.

In 2008, the DFI said it would revoke Paramount's license and issue a $500,000 fine against the company. The state alleged deceitful advertising, faulty disclosures and unlicensed originators. The company was criticized for failing to include required information in sponsored search engine ads.

In a subsequent consent order with the state, Paramount agreed to pay $225,000 in penalties to the state and $143,050 in restitution to 53 customers. It also agreed to change its ads, improve record-keeping and address other issues identified by the agency. Paramount was able to keep its license, which the state had originally sought to revoke.

Chase Financial Funding Inc. refunded more than $323,000 to 261 borrowers in a settlement of deceptive advertising charges filed against it by the FTC. Chase -- which is not affiliated with JPMorgan Chase & Co. -- allegedly offered 3.5 percent, fixed-payment, 30-year mortgage loans in its ads but duped consumers into signing up for adjustable rate mortgages in which the principal balance would increase if they made payments at the advertised rates.

The Pennsylvania Department of Banking's Office of Consumer Services, last spring, warned consumers about a new wave of misleading marketing tactics designed to entice homeowners into refinancing their mortgages with letters that appeared to be from their own lender or from the federal government. The homeowner, the office said, may call the telephone number on the letter thinking they are contacting their own lender or a federal agency only to learn that they are calling a company competing with their lender for business.

"These communications are brazenly misleading and intended to frighten and confuse consumers," said Secretary of Banking Steve Kaplan. "We are contacting the offending institutions as well as their marketing companies and ordering them to put an end to this practice."

Similarly in Massachusetts, some borrowers have received notices in official-looking envelopes, suggesting they are eligible for some form of "payment reduction" or "workout assistance," according to Boston Herald columnist Jessica Van Sack. One notice listed "Boston Service Center" in place of a return address and was titled: "NOTICE - Suffolk County Resident." The phone number to which the recipient was directed was to a lender, not a government program.

The phone number in a notice purporting to be from a Massachusetts Land Court that read, "You are advised to contact us immediately," belonged to a Rhode Island lender, she said, quoting an official at a company that purchases homes from struggling homeowners.

"Misuse of a government name in order to perpetrate a scam is especially common in the mortgage lending realm," according to Massachusetts Attorney General Martha Coakley.

Hundreds of thousands of mailings that appeared to be materials from the Department of Housing and Urban Development, the Department of Veterans Affairs or other governmental entities were sent out by Englewood, Colo.-based Assurity Financial Services LLC, according to the Colorado and Florida attorney general offices.

The mailers, which used a Washington, D.C., post office box as a return address, informed consumers in Colorado, Florida and other states that they were eligible for refunds on their mortgages.

Other mailers from the firm were made to appear as though there were from the borrower's lender or implied that the homeowner was delinquent on their mortgage when, in fact, the homeowner was not. When consumers used the phone number listed on the mailers, they were directed to operators working for Assurity Financial Services who were trying to solicit business.

Under an assurance of voluntary compliance reached with both states, Assurity agreed not to engage in any false or deceptive trade practices and is required to clearly label each mailer as "a solicitation for a home loan." Also as part of the agreement, Assurity was to pay $100,000 each to Colorado and Florida to reimburse the cost of their investigations.

ome reverse mortgage lenders, because the home-equity conversion mortgage is a government product, often imply that their mailings are from the federal government -- a suggestion that has made them the target of attorney generals in Illinois and other states.

It's a suggestion that has been avoided in its advertisements by Boca Raton, Fla.-based New Beacon Financial, a full-service commercial and residential correspondent lender.

But New Beacon first began with an extensive training program for all its reverse mortgage brokers, with the emphasis on educating the consumer as opposed to selling a loan, explained owner Thomas M. Simpson.

"We want to give our clients all the tools they need to make an informed decision on their own", he said. "The easiest way to do this was to get our product out there through the power of television advertising. Creative Bube Tube was key to getting our name out to potential clients."

The television commercial production agency, located in Milton, Ontario, Canada, investigated the details of the reverse mortgage, including the minimum age of 62, to ensure success in reaching the right clientele for New Beacon, Simpson said.

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Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]
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