So here we go again. Now that mortgage rates are headed up, the deceptive lead generation ads are crawling back onto the web. Here’s a great example from a Google ad:
FHA Refinance 4.0% Fixed
$160,000 FHA mortgage for $633/mo.
No SSN req.
Calculate payments now!
MortgageRefinance.LendGo.com
When clicking through, the lendgo.com lead generation site asks some simple questions like the value of my home, zip code, whether or not I’ve ever filed bankruptcy, etc. Then I’m asked to provide personal information and assured that I’m dealing with a secure website. Name address, phone number, etc. After I click “submit,” I’m told that I will be given four quotes. I clicked ‘submit’ after offering them the following:
First Name: Your Ad
Last Name: Violates TILA
But I don’t get a quote. Instead I’m asked even more questions before being told that four lenders will contact me within 24 hours: Quicken Loans, Onyx Mortgage, Americash Mortgage Bankers (I’m thinking it was a seven beer night when someone decided on that name), and….I’m totally surprised here: Paramount Equity Mortgage.
So, Quicken, Onyx, Americash, and PEM, Are you aware that the lead generation company you’re using is violating the Truth in Lending Act and probably a handful of state laws by advertising a note rate without conspicuously including APR in that ad?
I bet someone at these mortgage companies assumed that no one would be able to trace the deceptive ad back to them. Nah, their chief compliance officer couldn’t be that stupid. Oh wait, maybe they don’t have a chief compliance officer. Or perhaps these big mortgage companies are just making a strategic business decision: Violate TILA and some state laws and if we get caught, we’ll just pay the fine and move on because we’ll be able to earn six times the amount of the fine anyways.
Regulators: You’re being tossed under the bus in Washington D.C. this week as banker after banker stands before various congressional committees telling the world that the bank regulators were asleep at the wheel. I’m not going to throw you under the bus. Why? Because there never will be enough money to regulate every single mortgage lending transaction across your area of authority. You’ve got limited resources and regulators are always trying to balance everyone’s needs and are constantly being pulled in 10 different directions at once.
So I’d like to give the regulators a helping hand.
If mortgage companies are buying leads from a firm that’s using deceptive advertising, you can write out 5 consent orders and be very efficient with your time. Just start clicking on all the banner ads! It will be easy and mildly entertaining for your staff! At the same time, you’ll help consumers avoid getting sucked into doing business with a company that has chosen a business model of attracting consumers who are an easy mark.
They fell for the click through ad. They believed there was a 30 year fixed rate mortgage available under 4 percent! If they were stupid enough to fall for this, then that means perhaps the mortgage company can also win all kinds of other shell games with these folks, who probably believe there’s a diet pill that will help them lose those last 10 pounds and that the secret to prosperity and abundance is to think thoughtful thoughts.
Wait! Maybe that’s the secret to the housing market recovery: We can just use the power of abundant thinking to “think” away all those short sale, REOs, and re-defaulting loan mods! If anyone’s going to try this, let me know and I’ll calendar ahead to check back with you in 2014.
Here’s another google ad:
3.44% APR – Refinance Now
$200,000 Mortgage for $898/Month!
As Featured on CNNMoney & Forbes.
DeltaPrimeRefinance.com
Oh my goodness! This lead generation firm actually quoted APR! Which would be a cause for celebration, until you click through and see that they’re quoting a 5/1 ARM loan, and then they also inform us that this might be a 15 year amortization. Of course the APR looks awesome. Regulators, it would be interesting to find out exactly how many people, after filling out the online lead generation form, decided to select a traditional 30 year fixed rate loan instead of an ARM loan or a 15 year amortization. Classic bait and switch. Like shooting fish in a barrel.
These lead generation companies appear to hold a mortgage broker or lender licenses in various states, yet the consumer information is sold to other licensed brokers or lenders.
Question: Are mortgage brokers, lenders and banks responsible for making sure the leads they purchased are generated by advertisements that do not violate state and federal law? If the answer is no, then deceptive mortgage lending advertising will continue to grow as long as brokers, lenders and banks are able to skirt law by purchasing these leads.
To the loan originators who regularily purchase these leads: we need to send you to Tiger’s rehab center and wean you off the crack. Deceptive ads are poison to the system and they make it harder for you to procure clients using advertising methods that are transparent, ethical, and legal.
Maybe the broker/lender/banker willl say “We sign a contract and it’s the lead gen company’s responsibility to make sure the leads are generated according to state and federal law.” If I was a regulator (and sometimes I like to put on a dark blue suit and high heels and pretend I’m a regulator in the privacy of my own home) I might say, in response, “So what method do you use to be certain that the lead gen companies you deal with are advertising according to state and federal law?”
Quicken Loans, Onyx Mortgage, Americash Mortgage Bankers and Paramount Equity Mortgage, all a rational, thinking consumer has to do is google or bing your company name with the word “complaints” in the search box like I just did and they’d have all the info they need. But the rational, thinking consumer is not your target market.
Paramount Equity has already been investigated and ‘shut down’ by DFI for deceptive advertising practices. How in the world did they wiggle their way out of the cease and desist I read about a year and a half ago?
DFI gave them a slap on the wrist with a fine and a threat of “Now don’t do that again!!”. As Jillayne accurately points out, the fine they got was less than a couple of their radio ad bills. WHY SHOULD they quit? They are netting MILLIONS from predatory lending practices that they knowingly and intentionally engaged in (our included) and did NOT pay restitution to all the people they were supposed to. How do I know? WE never got restitution. They refused.
There is TRUCKLOADS of information on the business practices of Paramount Equity (They removed “mortgage” from their name, presumably to accommodate their new venture: Solar Power lending).
I have in my possession 200 email addresses of former customers of Paramount Equity because their broker mistakenly included them in a spam email he sent out to all the former clients in his area. That’s why I got one… SERIOUS privacy act violation. That means those 200 people have MY address too. I do NOT appreciate that. It’s just ONE of the things that I will be putting into my new complaint to DFI and the Attorney General. I have had ENOUGH.
GREAT GREAT Article Jillayne, as always!
I’m going to the heart of the online business community rather than the ads. It’s all information used to generate sales.
A loan inquiry can be used for a thousand things. When you combine it with other online information it creates a pattern. These are computers that have the ability to collect large amounts of information to create a profile.
Paul Allen, and others, are researching a software that can take Twitter, and Facebook data collected by your name to create these profiles for sales people. When you call in to make inquiries a search online, by name, gives a very complete picture of who you are.
I had a long discussion yesterday with a wealth creation consultant that uses this loan application data to target prospective clients. We never got to where it was all going, but they found me online, made the call, and thought I’d be interested.
Why would you think lenders would want these leads? Maybe not for mortgages, but other sales, consumer loans, easy credit terms?
Jillayne,
When we look at our competitors’ ads, I am constantly wondering 1. what is the quality (and therefore value) of a lead that would actually fall for the “4% fixed” click ad, and 2. who on Earth would actually decide to pay good money for these leads??
I’m glad that someone outside of the industry (I work in lead-gen) is asking the questions that you pose here. Maybe regulators will wake up and go for the low-hanging fruit that these ads represent.
Just one thing: please leave the diet pill ads intact. I feel like I’m always fighting those last twenty-five pounds. 😉
@JohnScottSmith
I don’t know how a consumer could work with a mortgage originator who has to buy a lead. You have to wonder why the LO is in a position where they do this… is it because they did such a poor job servicing their past/existing clients that no one will return to them? Are they not worthy of referral business?
Consumers–if a stranger contacts you about a mortgage–please ask them how they got your name. I wound up on a trigger list where LOs were calling me no stop a few years ago-obviously I had not applied for a mortgage with any of them but they would flat out lie, you were in our branch earlier…don’t you remember? It was sick.
I hope DFI goes after anyone who is under their authority, which would only be licensed LOs, correct Jillayne? Who will take enforcement action if they’re not a licensed company?
The problem is that consumers don’t really understand that LOs are basically independent contractors and when they are getting a mortgage they are really in fact hiring the LO to perform a service.
Lead generation companies are a scourge on the mortgage business. The reality is that no LO who is worth their salt is going to be aggressively buying leads. The longer LOs have been in the business, the more their business comes from referrals of previous clients and business partners.
If you have been in the business longer than 2 years and still need to buy leads to put food on the table, then you haven’t been treating your previous customers right or just suck big time at marketing.
I totally agree… I also don’t participate in venues like Zillow’s Mortgage Marketplace because I don’t need leads–I love working with clients, I do a good job–I get referred and returning clients.
Why do some LOs have to seek out people who don’t know them?
HI Rhonda,
The LOs I’ve met over the years who buy leads come from all kinds of directions. Some are brand new and have no client base. Others like the transactional approach to doing business: do a deal, close it, do another one; no relationship needed or desired. This is a mindset of many who came from different industries that did not cultivate long term relationships.
There are all different kinds of business models. Buying leads is similar to advertising on the radio!
Think of all the mortgage radio ads we hear. The LOs are waiting for the phones to ring and are paid less than LOs who go out and bring in their own deals.
I think there’s room for many different business models.
Provided we’re all playing by the same set of rules.
It’s interesting to see which companies ignore the rule book when chances of getting caught are low.
This tells me they’re probably choosing to break all kinds of other rules…when chances of getting caught are low.
Now imagine a new LO coming into the business and right into that corporate culture. Now multiply that by several hundred over the past 8 years.
I’ve met hundreds of LOs who can’t stand Realtors because they’re so demanding and would never ever consider working with Realtors as a method of procurring clients.
Nothing wrong with that mindset. These folks are another example of ppl who buy leads.
Hi Russ,
From 2007 to 2010 many LOs are no longer independent contractors because they absolutely had to switch to a firm that offered FHA lending in order to survive the meltdown…or instead let’s call it the transition.
U have to be W-2 to originate FHA.
Yeah, I am aware of the 1099 vs w-2 distinction. I was just saying that generically, being an LO is like being self employed whether you are w-2 or not. Even though I get a w-2, I absolutely function like an independent business – I generate revenue, I have expenses, I have staff, etc. My point is that consumers don’t realize that LOs in general are just little independent businesses and when they are getting a mortgage they are essentially hiring that INDIVIDUAL to provide a service, not the company per se. Any LO that doesn’t operate as an independent business or view it as such is probably not a good LO.
I agree with you that there are a variety of business models, but the reality is that there is only one model that sustains itself given the current structure of the mortgage business and that is referral based origination. Yes, many companies and LOs do marketing to make the phone ring, but for most that is just supplemental to the bread and butter. Origination is where the vast majority of the cost is involved for a company and there is not cheaper source of business than referrals from past clients. They are practically free versus having to pay tens of thousands of dollars in advertising costs which for the most part generates rate shoppers. Then you factor in the high fall out from lack of customer loyalty with those outfits it becomes hard to sustain. Plus they have to aborb those costs which means the rates ultimately are higher and worse for consumers.
For example, the top ten LOs at my company with just 100 total LOs probably closed close to $500 million in loans last year. I will guarantee that between just those 10 guys we probably only spent $30k in various marketing costs. How much do you think Quicken has to spend to generate that kind of volume between staffing up a call centers, TV ads, and billboards at stadiums??
Hi Social Apocolypse.
Please keep us all informed as to the status of your complaint. Sounds like you’ve gathered a lot of information that would be very helpful to DFI. Have you tried to resove your complaint directly with PEM?
Yes, I have interacted a lot with Paramount Equity, including Matt Dawson on many occasions. They talked a lot about wanting to be helpful, but at the end of the day they maintain that they didn’t do anything wrong and that there was nothing they could do. That’s fine, I have things I can do. My loan docs are almost humorously toxic, for example, my pre-disclosure documents (I even have postmarked envelopes that they mailed them in!) were sent to me the DAY AFTER we closed on the loans! After sending Qualified Written Requests to my lenders for my origination documents, as we presumed, they have NO signed good faith estimates, no pre-disclosure docs that matched the loans we have with them, and they do NOT have signed loan applications from us-because there WEREN’T ANY.
My second mortgage lender’s origination docs for my $86K loan included only a Good Faith Estimate for a loan in the amount of $430K !! NOTHING about the one we actually have with them. It’s really amazing.
Hi Nicole,
Paramount Equity was never shut down by DFI. They were investigated and a consent order was filed, but they still continued doing business during that process. They settled the DFI complaint. You can read more about that here:
http://mortgagefiduciaries.com/2009/05/paramount-equity-consent-order/
One of the things I noticed after DFI filed the initial consent order was that PEM changed their radio ads voluntarily.
The ads are on yahoo too… really pathetic. When I clicked through, there is an APR way down at the bottom of the page in a much smaller font over a busy graphic.
I hope this gets stopped.
Hi All, This is from Roger Ingalls who emailed his comment to me due to a javascript error:
Jillayne:
You just hit my hot button AGAIN!
I think you and I disagree on a few points, but we are largely in agreement on these points:
Deceptive ads pay more in profits than the fines cost, thus many advertisers and lenders make a calculated decision to break the law, and continue in business.
Regulators try, but are overwhelmed, and understaffed. See the story of 2400 FBI agents removed from investigating financial crimes in 2002, so they could focus on counter terrorism. Those agents were not replaced, and look where that got us.
Buying these leads is a suckers game, benefitting primarily the lead generation services (interesting side note above about collecting data from these inquiries).
We disagree on the optimal methods of correcting the problem.
The industry policing itself
I know that you hope this is the outcome, but I have not seen any reasonable results that suggest this will happen. There are inadequate incentives and penalties for competitors to regulate one another. There was hope that the mortgage business might follow the model of car dealers, which is largely self regulating (still deceptive, I suppose) but the mortgage industry is too diffuse for that model to work.
Consumer protest
Admirable, but again, the incentives for consumers to take action are too small. It’s unlikely that consumers will take the interesting actions that you did.
Media penalties
I favor making all parties that profit from this endeavor liable for the penalties. That should specifically include the advertising medium (newspaper, radio, internet, etc), that possibly profits the most. There is no reason that advertisers should not be required to ensure that the simple laws governing advertising credit are adhered to, though the law specifically exempts them from liability. I think you disagree, or at least once did.
Several points that seem to be overlooked here:
There is REAL damage done to consumers by this deceptive information.
It harms the honest and legitimate lenders and advertisers, driving many out of the business, or discouraging them from advertising.
It delays consumers taking intelligent action. Borrowers may WANT to believe these impossible rates are real, and delay acting on REAL rates and information. I have several recent examples.
It creates a general mistrust of all lenders, honest or not.
ANYONE who advertises credit terms is bound by the same law, but responsibility for the enforcement of the law diverges, depending on the type of business advertising the credit.
So….who DOES one report this behavior to? There are multiple agencies to report to, with differing areas of jurisdiction.
If the deceptive advertiser is a mortgage broker or a consumer lending company licensed in Washington, you can complain to DFI. Reasonably effective, they will at least investigate the charge, and they have been successful at making some change in advertising behavior in Washington.
If the deceptive advertiser is NOT one of the above, who do you report it to? All advertisement of credit terms are under the jurisdiction for the FTC, but good luck with getting them to take action. I’m sure they need to prioritize like anyone else.
If the deceptive advertiser is a realtor, or a real estate marketing company, or a lead generation company, you can report it to the WA AG office, but that is not effective in my experience. Forget about reporting it to the FTC…, nothing will happen.
So, I come back to the one place where we can actually fine someone, and make that fine significant enough to stop the ads. Fine the media that sell the advertisement 3 times the revenue generated from the ad, if the ad is found to be deceptive and/or illegal. Not wishing to lose more than they stand to gain, the legal department for the media will at least enforce minimum standards of legal compliance and due diligence,. That’s how to curtail illegal advertising in the media.
Either that, or enter into private lawsuits against them like American Interbanc did against Bankrate. But that takes a lot of money and patience.
http://seekingalpha.com/article/13419-bankrate-com-sued-for-deceptive-online-mortgage-ads-rate-bpop-iaci
Hi Roger,
I think there are several people who have tried to hold the media accountable for advertisements that violate state/federal law but I believe there’s some sort of rule giving the media an exemption of some sort. This would be a good legal research project for someone but I’m sure there’s a case out there that everyone turns to and then just gives up. So the ads continue to appear and the media takes their advertising dollars.
Yes, the act that governs the legal advertising of credit specifically excludes the media from responsibility.
From the FTC booklet ” How to Advertise Consumer Credit Legally”
http://permanent.access.gpo.gov/lps1807/general.htm
“There is no liability under the Act for the media in which advertisements appear. The media can, however, protect their customers by screening advertisements to make sure that they comply with the law.”
That should be changed at the federal level. I see no reason not to.
Legally, the government cannot go after the media under that act, but if an advertiser can prove they were harmed by the illegal advertising, then they may be able to collect damages, such as the $3M that Bankrate paid to American Interbanc.
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