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Federal Regulators Target Mortgage Ads

Investigations launched, warning letters sent

Nov. 19, 2012

By Mortgage Daily staff


After reviewing hundreds of Internet, newspaper and mail advertisements, two federal agencies have launched investigations and issued warning letters over potential violations of a federal advertising rule. In addition to mortgage companies, ads from lead companies, home builders and advertising agencies were targeted.

The 2011 Mortgage Acts and Practices Advertising Rule, or Regulation N, prohibits misleading claims about government affiliation, interest rates and fees and costs.

The rule also doesn't allow misleading claims about loan-related payments and the amount of cash or credit available to the consumer.

Nonpublic law enforcement investigations have been started by the Consumer Financial Protection Bureau on six companies suspected of violating the law with false advertisements that baited mortgage prospects.

The CFPB said that it has joined the Federal Trade Commission in issuing warning letters to approximately a dozen mortgage lenders and brokers. The group is being told to "clean up potentially misleading advertisements, particularly those targeted toward veterans and older Americans."

The actions follow a joint CFPB-FTC review of roughly 800 randomly selected mortgage ads across the country that were displayed in newspapers, on the Internet and in mail solicitations. Some of the ads were sent in by consumers, and others showed up on Facebook. The review included refinances and reverse mortgages.

The two agencies were looking for potential violations of Reg N. The CFPB and FTC share enforcement authority over non-bank mortgage advertisers including mortgage lenders, brokers, servicers and advertising agencies.

The review uncovered mortgage ads with official-looking seals and logos or other characteristics that could have been interpreted by a consumer as being government-affiliated. Potentially inaccurate interest rate information was identified such as ads promoting low rates that might have misled prospective borrowers about actual loan terms.

Some reverse mortgage ads indicated that no monthly payments were required even though such loans often require payments for property taxes and homeowners insurance.

Another problem area was the use of misleading pre-approval letters where a number of steps were still required to qualify the loan prospect.

While the CFPB focused on the advertisements targeting seniors and veterans, the FTC examined ads by home builders, realtors and lead generators. The FTC is issuing its own warning letters to about a dozen companies and continuing with its own investigations of even more companies based on its findings.

"We will conduct a fair and rigorous investigation into these issues and will take appropriate action for any violations we find," CFPB Director Richard Cordray said.

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