Deceptive Radio Advertising in Mortgage Lending

Because of the enormous amount of deceptive direct mail, Internet, and email spam advertising currently taking place in mortgage lending, for this blog article, let’s focus on radio advertisements.

Every city I visit, loan originators and brokers complain about deceptive radio ads running continuously, making claims that may or may not be true, slamming the competition, and barely if not at all complying with advertising requirements set forth in the federal Truth-in-Lending Act. When I was in Vancouver WA recently, LOs told me there’s an ad running that says something like this: “If your mortgage broker charges any fees at all, they’re predatory lenders.

110 thoughts on “Deceptive Radio Advertising in Mortgage Lending

  1. It is a shame that we have to live in a society where deception rules and truth is alway laying away in the shadows.
    The real issue here is how to come across as being the one telling the truth.
    Is there a way?

  2. Hi David,

    Advertising is nothing more than an invitation to do business. Everyone is suppose to play by the same rules. Business is a game; nobody likes to play with cheaters.

    When interpretations to what constitutes “deceptive” and “unfair” are left vague and ambiguous by state and federal regulators, it’s anyone’s interpretation.

    Some regulators have jumped up and given us better definitions to work with.

    For example, when quoting an interest rate, one must also ALWAYS quote APR. We DO hear this being done on the radio, towardtheendoftheadsaidveryfast.

    Another example is radio ads touting the “best rate of a lifetime” or “lowest rate of the year” or something to that effect. Best and lowest are hard to determine. In WA state, this constitutes deceptive advertising.

  3. Hi Tim,

    I clicked on that link and found the guy from Georgia through the Broker Universe grapevine. He sounds like a very clever businessman.

    How long will it be until they start advertising zero interest loans with an APR of zero, a cost of zero, and a monthly payment of zero?

    Every time I tune in, another lender says “we’ll even pay for your home to be appraised,” or, “we’ll pay for your title, and your appraisal, and we have no hidden junk fees.”

    Which will be the first company to advertise: “We will PAY YOU to get a loan from us.” A federal law violation, but where’s HUD when we need them? Oh, that’s right, they’re busy launching FHASecure.

  4. Jillayne:

    While the deceptive advertising sucks, the reality is this stuff works.

    You know why you get so much spam? Because spammers know someone is stupid enough to believe that a Nigerian prince has $1 million dollars if only they had an American friend’s bank account numbers to deposit the money.

    The same with mortgage advertising. These companies know consumers only care about payment and interest rate. Most consumers don’t want to be educated. They just want to know they don’t have to pay any money at closing and that they have the lowest rate in town so they can get back to watching American Idol or whatever show middle America watches nowadays. After all, they are only dealing with their largest financial transaction (sarcasm off).

    I agree, the mortgage business needs to self-regulate. However, I don’t know that it is possible. Consumers as a whole don’t seem to care about their loan originators qualifications.

    I would love to see a real certification that means something in the market place – real licensing, testing, agency relationships, etc. An organization that has the ability to disassociate itself from the sheisters. Our associations don’t have any teeth and there aren’t any real reasons for belonging to one other than a few golf outings. The other associations you mention have teeth because they control who can participate in the profession. Want to be a lawyer? Gotta pass the Bar. Want to be a Doctor? Gotta go to a AMA certified school and pass the med exam. Mortgage brokers simply do not have the same barriers to entry.

    If scum bag broker ticks off the more ethical members of NAMB, who cares? NAMB can’t prevent him from originating loans.

  5. But NAMB (or its state affiliate) can prohibit that person from using the NAMB logo by refusing their membership fees.

    Glad you stopped by again, Russ. Good to hear from you. Here’s what I see happening out there. I see a handful of small, grass-roots organizations that are trying to bring a transparency of sorts, to the surface, along with higher standards, so consumers can select a lender from a list, and then go back to watching American Idol. Here are a couple that I’ve noticed:

    The Upfront Mortgage Brokers Association

    Nat’l Assoc of Responsible Loan Officers

    Ethical Lending Foundation
    (Full disclosure: This company is owned by myself and Kevin Boileau, Ph.D., J.D.)

    There could be more. Is this a trend? I don’t know. I’m more of a doer instead of just a talker, that’s why we formed the foundation. I believe that many things are possible, and that meaningful change happens slowly, and from the outside of big corporations (or associations) instead of from within.

  6. Fire up a barrage of complaints to the radio stations – and to the FCC.

    A broadcast license is a public trust. It’s a shame to see it abused by radio stations who clearlly know that they’re promoting fraudulent behavior.

  7. Hi Joe,

    I am not 100 percent certain on this, but I believe the media such as radio and newspapers, are not liable for any claims made by their advertisers.

    It’s up to the advertisers to comply with the laws that govern their business practices.

  8. Jillayne-

    You’ve sure pushed my hot button with this topic. Drives me nuts but I don’t think more regulation is going to work.

    The truth is you’re working with human nature. And people want (or want to believe) they can get something for nothing – a free lunch.

    Perhaps if someone started quoting loan rates in terms of yield to the lender? Yeah I know it’s a bit more complicated… I have to admit, the average person’s eyes just glaze over whenever I start talking about yield, but somehow loan rates need to be normalized before the consumer will understand.

  9. The federal government’s idea of trying to help the consumer “understand” was to hand us the Truth in Lending Act, which (among other things) requires us to quote APR when we quote the note rate.

    I’d just be happy if mortgage brokers stopped bad mouthing each other via radio airwaves. It makes us all look like a bunch of schmucks.

  10. Exactly. I’m actually a bit surprised that we have not seen a huge refi boom this year as people try to get out of their ARMs, but then the credit crunch took care of those dreams. There are still thousands of ARM holders scheduled to reset throughout 2008.

    I heard one the other day that said something like this: “If you have a credit score under 500 you can still get a loan”

    Is that true? If so, under what conditions? I would imagine that the refinancing homeowner or homebuyer would have to have a pretty decent equity position.

  11. Jillayne — You may want to remove the word “lawyer” from this statement …”deceptive, false, misleading, and borderline illegal radio ads out there from doctors, lawyers, dentists ” 😉

    I don’t know about other parts of the country, but here in Los Angeles, daytime TV is filled with ads from personal injury lawyers boasting of the huge accident/workers comp settlements they can obtain.

  12. Jillayne wrote: “Exactly. I’m actually a bit surprised that we have not seen a huge refi boom this year as people try to get out of their ARMs, but then the credit crunch took care of those dreams. There are still thousands of ARM holders scheduled to reset throughout 2008.”

    I’d guess people with ARMs are not the most forward-looking people, which probably explains the lack of a boom prior to the crunch.

  13. Jillayne, I recently completed going through my database to contact EVERYONE with an ARM. Even if we just provided it. Many of my ARM clients are just starting to reset. I have found that a few of my clients all ready refi-d into option ARMs (I wrote about it today at Mortgage Porter)…disasterous.

    I’m receiving emails from across the country from people with ARMs who are resetting and their property values have declined or their credit has tanked…or both. This is why consumers with ARMs should not put off talking to a Mortgage Professional.

  14. Kary, “people with ARMs are not the most forward-looking people”… that’s a pretty big generalization.

    People with ARMs who did not retain their mortgage for 30 years (sold before it adjusted) yet saved thousands of dollars on their monthly mortgage payment and interest would be the most forward looking people. They planned their mortgage. If their life turned out as they planned and they did not retain the home/mortgage beyond the ARM period, they made an excellent choice.

    We have a 7 year interest only ARM on our current home. It’s working fine. We do plan on retaining our home beyond the seven years and we have a mortgage strategy in place for that.

  15. “I’d guess people with ARMs are not the most forward-looking people, which probably explains the lack of a boom prior to the crunch.”

    You don’t have to be so cynical. Maybe those people are gladly working 24/7 for the opportunity to prove that they can not just “get by” but have a nice home. Maybe every day they thank their lender for believing in them and giving them an ARM. It was probably the boldest move of their life, but they thank everyone that took a chance on them and they’ll work hard to honor their commitment to their lender.

    Have you ever thought of it that way?

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  17. Joel, with my mortgage practice, I learn what borrowers long and short term goals are and educate them on what their options are. The choice of what mortgage they want is their choice.

    As a Mortgage Professional, I will provide my opinion on why or why not I think a certain product is worth considering or perhaps not the right choice. Some will take my advice and some don’t.

    There is nothing risky about a fixed period ARM when it’s used properly (knowing the terms and having it fit someone’s specific scenario).

    What is dangerous is getting a mortgage and not understanding the product and not having a plan to accompany it.

  18. Rhonda,
    Great Post!

    I think that it is vital that the real estate and mortgage industries regulate themselves. This is a project that a couple of groups are working on based on “peer’s review/mediation

  19. Hi Cheryl,

    I knew at least one person would take a stab at lawyers and their ads! Thanks for making my prediction come true. I just won a bet with my business partner. I don’t watch much TV, but I have heard some radio ads placed by lawyers. Most of them have targeted a certain segment such as divorcing dads and how important it is for a divorcing dad to get legal counsel BEFORE the divorce decree is final. The ads I heard were respectful.

    We’d have to look at the California Bar Assoc Code of Ethics/Advertising to figure out if the TV ads are within their guidelines.

  20. Hi Rhonda and Joel,

    The best of planning can sometimes not help when a homeowner’s situation changes. Now they need a new plan. That ARM loan might no longer “fit” in with what’s going on in their life.

    Rhonda I’m fascinated by the customers who refinanced INto an option ARM. WHY did they do that?

  21. The Tim,

    I just used your blog comment (#21) in a class about blogging, to show real estate agents how reading other people’s blogs can bring traffic to your own blog. So now you’re going to have a bunch of Realtors visiting your blog today.

    I MISSED that post of yours from June. I haven’t seen many banner ads over the past few weeks. One of my students last week said they (finally) got nailed for their deceptive banner ads.

  22. Jillayne, yes “life happens” and plans change. There are a few of my clients who selected ARMs and still have their mortgages. This is also why meeting with your Mortgage Professional for an Annual Review is important.

    The 2 clients who opted for an Option ARM did so for very different reasons. One believed (from their LO) that they were being savvy investors after reading “Missed Fortune” by Douglas Andrews. The other was trying to reduce her monthly payments not knowing that there was negative amortization devouring her equity. Neither were informed that they had a prepayment penalty until at the signing appointment.

    The second client (Iwho thought she was saving on her montly payment with an option ARM and who’s mortgage balances now exceed her property value) just emailed me:

    “By the way, I just read your article. So true! Whether you are able to help me now, down the road, or not at all, I appreciate your honesty and know that you have your clients best interests at heart. I just wish I would’ve stayed with you to begin with and I wouldn’t be in this situation.”

    It makes me sick that I cannot refi her out of the mortgage I did not put her into.

  23. Sad, sad. Rhonda, what will likely happen to the client who has now overmortgaged? Do clients like this just stay in the home and hope for the best?

    I suppose if they don’t HAVE TO sell, they can just stay put for 10 years and make the fully amortized payment. How do counsel folks in this predicament?

  24. Jillayne,

    I wasn’t suggesting in any way that the media had liability. As someone in the media, I’m aware they don’t.

    What I was suggesting is that they should be responsive to their readers, and to their non-sleazy advertisers, all of whom are equally hurt by being associated with the sleaze.

  25. Hi Joe,

    You raise an important component: ethics in journalism and media. These are hot topics right now in business ethics academic circles. For example, a question worth pondering is: how far ought (in this case we’ll say radio) radio companies go in determining whether or not a paid advertisement is in compliance with or in violation of any state or federal laws?

    I would guess that right now, radio stations just have the advertiser sign a contract where all the responsibility is put on the advertiser.
    Radio stations probably just operate under their own FCC guidelines and as long as the ad complies with FCC laws, they take the ad.

    Does that sound about right? Thanks for your help, here. I appreciate it.

  26. Jillayne, this is a new one for me. Where it is hard for to advise is the future value of her home. I’m going to review her note from the other lender.

    She does have the option of making minimum payments (she can’t afford the full–that’s why she refi’d) and hoping that one day her home is valued more than the mortgage balance or she can walk away.

  27. Your post was thoughtful and well written. In Colorado it seems that you Choice #1 is in process. The state legislature has passed a basket of laws ostensibly designed to protect the consumer from bad lending practices and forwarded those laws on to the regulator in charge. It is unfortunate that the laws are not well written, suffer from poor logic, cannot be appliled evenly, and in some cases conflict with federal laws. It becomes even more interesting when the regulator issues the required “rules” designed to implement the laws. What we end up with is a situation that only slightly improves the position of the consumer, but makes the politicians and regulators look great in the press.

  28. Hi Larry,

    When we let government regulate business, we ought to expect the kind of outcome you’re facing on Colorado. A state law can’t be less strict than federal, but then who’s really overseeing the radio advertising section of the federal truth-in-lending act?

    The real question is, how involved are the mortgage brokers in the rule-making process? Without industry feedback and guidance, the politicians are left to just try and do their best.

    Please keep us posted on how well the new laws are implemented!

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  30. This is very difficult for the average consumer to understand. Hopefully, they will be working with a real estate professional, who can help guide them to an ethical and professional lender.

  31. Susie, I agree. This is why I wish all Loan Originators were held to the same standards and regulated by the same entity. Currently mortgage bankers and mortgage brokers operate under different rules. Worse case scenario, if a borrower has an issue that their LO does not resolve, they have to figure out what type of lender they’re dealing with and who on earth regulates them. This is one of my beefs with our current system.

  32. Susie,

    What about all the consumers who did work with a real estate professionals and still ended up upside down with their loans? Until the average consumer decides to do some research for the biggest purchase of their life, they’re going to get into trouble. Part of the problem has been that consumers let their due diligence slide in favor being lazy and/or greedy and passing the “work” off to the professionals who surprise, surprise, are NOT unbiased about the preferred outcome or direction of the transaction. Simply put, the average consumer has got to make it his business to understand what he/she is signing up for.

  33. Hi Rhonda,

    I don’t think wishing will ever change the standards in our lifetime. It’s a nice dream, though.

    This state’s mortgage regulator, DFI, just recently posted a PDF of a speech made by their director, showing the absurdity of the regulatory matrix.

    No wonder the deceptive ads continue. Consumers don’t realize they’re being deceived and then when they want to complain, where do they start?

    I’ve always advocated that the place to start is with the company that deceived you.

    But not everyone loves conflict/confrontation.

  34. SS,

    What many loan originators fail to pick up, but I did, from reading your comments, is that loan originators are not a professional group.

    If they want to emerge from the subprime mess AS professionals, and subsequently be seen by consumers as professionals, then as a group, they will need to address the issue of how they treat their competitors. For example, right now anything goes. A competitor can bad-mouth another competitor in a radio ad, and as long as the advertising mortgage company is not saying anything untrue, the ad stands.

    The consequence is that consumers don’t know who to believe or trust, and it makes the industry as a whole look awful.

  35. Jillayne,

    I don’t know if thats what I was saying. My post was along the lines of “Trust but Verify” as its hard to judge who is trustworthy other than in hindsight. My point was that you cannot go in to the biggest purchase “uneducated”. If you do, you stand a chance getting into trouble. I am all for regulation to help inform the consumer. Ultimately, the consumer has to put themselves in a position to judge where the interests of the professionals lie. Susie was making the point that

    – this is difficult for the average consumer to understand
    – they should work with a real estate professional who will guide them to a ethical lender

    I think the average consumer has GOT to understand and if they do not, ask the professionals to help them understand. You cannot take out a loan for 100s of thousands based on trust that the professionals on the case have got it right. I agree it is hard – but ultimately its the consumer who will have to pay off the loan, not the professionals. It does not matter how well regulated the industry is, this attitude of its too complex to understand has got to go. Why blame the LO’s when you signed your life away?

    I understand what you’re saying after looking at the other thread you linked to. Maybe I’m an anomaly, but I think the whole concept of “trusting” a real estate professional without putting in some legwork is just asking for it. From the outside, lets just say that it is hard to trust people in an industry with as many labyrinthine rules, monopolistic setups, and blatant conflicts of interests as part of the system. Now, does that mean that there are no honest and ethical professionals? Not at all, but is it prudent to place your future on “trust”?

    Sorry if this is going off track, but I’ve long wondered about a list of must read books for the home buyer to understand the process and the industry. Almost like a way to be well prepared at signing. Any suggestions?


  36. Hi SS,

    You’re not off track. Once again, I hope I’m not putting words in your mouth but here’s what I learned from reading your comment: Consumers are suppose to trust the real estate professionals. Real estate professionals want consumers to trust them.

    But that must be balanced with some sort of consumer responsibility.

    I assert that purchasing, refinancing, and selling a home has become so complex now that an average consumer could never begin to learn enough to know everything about the transaction and that, as time moves forward, more responsibility will be placed on to those folks who hold themselves out to the public as “professionals”

    Now, about that book, I run an association called “ethical lending foundation” where those folks who have joined pledge to put the client’s interests above their own.

    On that website, I do sell a pamphlet for $9.71 that you can use when shopping for a mortgage and also to take with you into the closing room. It’s called “how to get a fair loan.”

    We generally frown on self-promotion on this blog, but you asked, so here I am offering some solutions.

  37. Hi Rhonda,

    You are so very correct. Your point is valid. It is not fair to consumers; not knowing which regulatory body is assigned to take their complaints regarding advertising.

    See page 28 of this PDF, released from DFI:

    which shows a matrix of state and federal laws, all the different regulatory bodies overseeing these laws, and then the different kinds of business entities. This belongs on a Colbert Report skit on Comedy Central.

  38. In reading many of the comments to your blog, I see the word “trust” used frequently. As a noun, the word “trust” means “assured reliance on the character or truth of someone”. As a verb it means ” to place confidence”. Much of the consuming public is too financially
    illiterate to have the knowledge base needed to judge a lenders trustworthiness. The consumingpublic is willing to place confidence in internet lneding institutions, which is silly stupid. Way back when we used to go to banks to get loans, we had to look the banker in the eye, and vice-versa, and realtionships were fostered that led to “trust” on both sides. You cannot judge someone’s character via the internet. In our haste to save time and be efficient, we are taking relationships out of the equation.

    Since we probably won’t change the inevitabilty of the wireless world, perhaps we should create an industry standard that mortgage loans cannot be made without the consumer attending a required 4 hour class on mortgage loans. The class would be different in every state, prehaps with administration coming from each states banking and/or mortgage lending association(s). Or maybe by legislation and regulation, sincde it is doubtful if any trade group would get together on on such a proposal.

    One could easily propose the same sort of enforced consumer awareness coming from the Realtor community.

    I can hear the whining now.

    -that 30-

  39. Jillayne, that’s amazing. How do you find all of this stuff???

    Larry, I agree. A class would be great for first time home buyers and possibly optional for those who have gone through a mortgage. Maybe they have to pass a test first in order to not retake the class! It would eliminate the potential problem that Loan Originators will have with determining “suitability” without chancing discrimination.

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  41. Hi Larry,

    No whining here. I’m speaking from experience. Classes such as this are already available and have been for many years now. They are often free of charge and put on by non-profit associations all across the U.S.

    I’ve taught adults in a professional setting now for almost 15 years and I can tell you right now that it would be literally impossible to teach an average homebuyer everything they’ll need to know in 4 hours, IF we’re talking about teaching so that they RETAIN what they’re learning.

    If the instructor reverts to “lecture mode” the consumer would be sitting there with eyes glazed over at about the 45 minute mark.

    In today’s world, pushing 100% of the responsibility out onto the consumer is like you or I going into a doctor’s office for knee surgery and the doctor handing us a stack of medical books and saying “you decide which procedure is right for you.”

    Before we’re done with the subprime meltdown/credit crunch/liquidity crisis, we’ll most likely see more federal laws putting this responsibility back onto the person interfacing directly with the consumer. That would be the loan officer or loan originator.

  42. Jilayne, I’m so pissed I just wrote about this at Mortgage Porter.

    I didn’t think it was nice enough to post here. Anyhow…get this, WaMu says they want Mortgage Brokers to disclose their fees…they are disclosed…MORTGAGE BANKERS DO NOT DISCLOSE YSP OR SRP. Including Correspondent Lenders (like me). I have no problem disclosing my srp, even when I’m not brokering and I’m closing in our credit line.

    What I do have a problem is the spin WaMu is putting on this. As if it’s the brokers that have created Option ARMS (which a good chunk of WaMu’s business is based on)… I remember being at WaMu Option ARM presentations years and years ago promoting this product to clients. They have AEs who push Option ARMs to Mortgage Brokers so we can sale for them… They’re one of the originals…but now they’re trying to lay blame on brokers?

    I want to puke. Talk about deceptive.

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  44. I couldnt agree with you more. One step further would be radio advertising on spanish speaking stations. In southern CA, it is almost demonic how horrible the radio advertising is. They lie and twist words so bad to a segment of the population that really is at a disadvantage as far as disclosure and representation. Most disclosures are sent to spanish speakers in english, most escrow officers speak english and cannot explain the loan docs which are also in english!!! So these people listen to the radio and hear some guy telling them great STORIES of how low their rates are and how easy it will be to qualify. Most of those people are now clients to realtors trying to sell their homes through short sales, or just walking away. It is a sad state of affairs, but self-regulation is the key. Government intervention will just create a quagmire, and raise our fees and costs of doing business. We, as “mortgage professionals” need to take the wheel and start driving on the right side of the road. Just like steroids in baseball, when people can cheat, with lies and fraud, and wont get caught, they WILL cheat! Those of us that actually follow a code of ethics, need to be leaders and do what’s right.

  45. The best solution would be “self-regulation”, which is to design clear and thorough guidelines for advertising that promote telling the truth and consumer oriented. I listen to those ads on radio and often am surprised about what they promise to offer which is unbelievable.

  46. These kind of advertisements only confuse consumers more and make the honest LO’s job harder. We have to explain why we charge for appraisals, title, escrow, and so forth when they heard on the radio that there were NO FEES. You try not to get frustrated but some people really believe that there is a free lunch.

  47. They (the advertisements) must be working because there is still a constant barrage of misleading ads on the radio stations. Drives me nuts! Makes the whole industry look like a bunch of used car salespeople hence my belief that industry change will take a while longer. Yes, I explain to borrowers, all mortgage companies are in business to make money – how else do they stay in business? Yes, title insurance costs money, Yes, an appraiser works for money, etc. The borrower needs to understand that either you pay the fees up front or you pay over time with a higher interest rate. Sometimes that may be the best option for them but I do not think that many understand the difference.

  48. You really hit the nail on the head. The best response is to contact the offending party 1st to help point out the issue. If they are of good character then the problem should self correct. If not…then a step in the direction of alerting industry associations to help put pressure on the offending advertiser to correct their ad is a possibility. The problem will always be present, but with more of us on the “Block Watch” we can make it a better neiborhood in the long run.

  49. I find that if I can sit with my client and show the the ins and outs of their current mortgage, future mortgage, ect… and any false advertisement they are pretty receptive. Has anyone noticed that word of mouth spreads pretty rapidly. Eventually these false advertisers will hang themselves with their own words. I believe the best thing we can do is educate as many people we know against the false advertisements and let the word of mouth do its thing. Not to mention this doesn’t cost any money. Note.. confrontation can also be thrown into the mix, but let’s be carefull not to make an ass of ourselves in the process.

  50. Hi Everyone,

    I have a home fax machine and routinely receive faxes that violate state and federal law. There is no contact information on the flyer. No broker name, no licensing information. I have no idea which company this fax represents. The only thing on there is a phone number. When the number is called, it’s a person taking loan applications for 50 different mortgage brokers. Is this person licensed I ask her? The answer is NO.

    When mortgage brokers stop buying these “leads” from lead generation companies, you’ll be able to spend less time educating the consumer about your deceptive competitors and more time listening to what they need.

  51. Prior to reading this article, I would have probably chosen to do nothing when I heard a radio ad that was deceptive and unethical. I would have probably taken the attitude that it wasn’t my place to control everyone else or try to make people accountable for their actions on my own. I would have instead focused on myself, making sure I was handling myself, my clients in a professional manner with a high ethical standard. Seeing other alternatives that may be simple but make a point and might make a difference might sway me to take a stand if needed. I enjoyed the article.

  52. Self Regulation – I’d rather have conflict and confrontation with the Joe running the bad ad as opposed to prospects, friends, family and repeat clients shopping me on rate and fee because they don’t trust the industry!

  53. “Create respectful, responsible, and honest advertisements, with hopes of drowning out the competition.” This part of the article struck me the most. I feel it of the utmost importance that if we wish our industry to change we must create Ownership and Responsibility! If we as loan originators and mortgage brokers wont stand up against those who falsely represent our industry than who will !? We all need to take a stand and call out those who make us look bad and if we are the ones conducting our business in a ethical and honest manner we will be the prospers of others who illegitimately make claims.

  54. I found the comment from Marcos Bolanos most interesting. And this happens in a state (CA) where mortgage brokers have fiduciary responsibility!

    But apprarently loan originators and advertisers do not.

  55. California does not have enough resources to effectively regulate their mortgage licensees. Mortgage brokers and LOs know this. The risk of being caught is low, the pay out is high. Mortgage brokers are going to pay for lack of self-regulation. The entire industry will pay. It is very sad for me when I hear brokers blaming their regulator for allowing this to happen. Nobody wants to look within.

    Example: lead generation companies. I STILL receive deceptive mortgage spam and mortgage junk faxes where the ad is obviously bait-and-switch and does not comply with federal or state law. Mortgage brokers are the ones who are buying the consumer leads from these companies.

    Doing so perpetuates the broker’s need to continue to advertise in this way because the broker is competing against the lead gen companies to which the broker is keeping in business by buying the deceptive leads.

  56. There are a lot is self-destructive business loops, in fact one could reasonably argue that the entire global economy is based on a giant downward spiral (we must consume more, and run faster just to stay even, even though it is clearly destructive to our planet). Jared Diamond’s book “Collapse” is a pretty decent examination of what happens in micro-civilizations like Easter Island, but I digress.

    I can tell you it is incredibly difficult to create and fund effective advertising using legal methods. I’ve tried, and will continue, until I am positive it cannot work. I have a strong belief that the effectiveness of my advertising is diminished by the presence of illegal advertising.

    It took over 20 hours of work just to get the words “lowest rates” out of the Seattle Times Mortgage Rate directory. Hours that could have been spent generating revenue.

    I suppose I could test the theory of which method is most effective, and see how many hours it takes to rid the airwaves of illegal advertising by calling the advertisers themselves. I would be very confrontational, and would probably not be good for my health or state of mind, so I choose not to. I’m not chicken, I just need to show some respect for my equilibrium.

    I have already tried (and continue to labor) to get the media themselves to put some effort into keeping advertising responsible, but since the FTC absolutely clears them of any culpability, they are not remotely interested in my protestations.

    If the advertisers that spend incredible sums of money band together and demand accountability from the media, then maybe it will happen.

    However, when Linden began to advertise illegally on KCMS 105.3, I called them on it, and pointed out exactly what was illegal, and copied their largest advertiser, Kiel Mortgage.

    Kiel Mortgage’s protests were completely ignored. Linden’s advertising subsequently got WORSE, with endorsements from the on-air personalities. I asked for an apology from KCMS, and was politely refused. I strongly believe the other advertisers are owed monetary damages, as the media knowingly aired illegal and deceptive advertising.

    This approach worked somewhat on but I still see deceptive rates, costs and APR’s every day I can stomach to look.

    So therefore, if you despair of the regulators regulating the industry, perhaps you can get behind them regulating the media?

  57. We need to help each other instead of fighting each other through third parties. There will be some mortgage brokers that remain standing after the rest finish melting down. Whoever is left can help set the pace for the future.

  58. Faulse advertisement is not only deceptive and misleading but also causing confusion among consumers and creating unfair competition. Lot of times, we have seen advertising in mail anouncing you have been approved with a super low interest rate of fixed mortgage but none of them would ever mention the points or APR. This is a very common sales scheme that mortgage companies use to trick consumer to call and then their sales people will try to talk consumer into signing a contract. I found it is very hard for me to explain to my customers that when comparing rates, they need to compare APR or ask if there is any points when quoted the rates. Either contact state regulator or self regulation, we have to do something to stop this kind of faulse advertisement.

  59. I think it is very sad that people have to lie and mislead to get the phone to ring. lying and misleadinding is like stealing from a consumer who doesn’t know any better. and then when they meet the lo for the company it probably gets worse. then the ethical lenders gets looked down on and gets flack ” i hope you are NOT like my last lender”. i hate when that happens but do the job right and you have a friend and client for life. P.S. SOMETHING NEEDS TO BE DONE ABOUT MISLEADING ADVERTISING.

  60. I definitely agree with the approach that we should hold each other responsible for ethical advertising. The best solution would be to confront the situation ourselves. The only thing for me personally is, I don’t know 100% of what is the letter of the law for advertising. And I don’t want to get caught in a situation where it looks like I am seen as a sore loser because I didn’t come up with the idea in the first place. I feel as though there is a lot of gray area in radio advertising. Print advertising is pretty straight forward, but it needs to be be tightened up.

  61. The business culture of loan origination needs to make a philosophical shift away from a “buy low, sell high” retail mentality. The job should be redefined to be an equity consultant to assist a homeowner with sound choices to manage one of their largest investments. I feel that the public message, as defined by the advertising presented to consumers, will shift as the culture shifts. This is, of course, not an overnight solution but a long term goal that can also go a long way in repairing the current perception of the industry.

  62. Yes, the radio ads are very annoying. I actually have picked up the phone before and called the company and asked to speak to the owner. He actually provided me with the lender that they utilized for quoting the rates and he had a basis for doing so. However I know this is not a standard. I do think self regulating is one way to raise the standards within the industry, however until there is a higher level of professional ( i.e fiduciary duty, code of ethics) we will continue to hear and see these ads.

    I even had a client pull out the Sunday paper once and his cell phone and he wanted to call 4 lenders in the ad, he had them all fax him good faith estimates. 1 out of 4 followed up with him. The one that
    followed up, of course had buy down points that were not disclosed. This client constantly shops around in commercial and residential markets and often comes to me with these crazy quotes and ads he hears. That excercise that the client initiated is why I developed a loyal customer, I have since closed 12 transactions with him.

    In addition, you can look at these adds on the bright side “free” advertising for yourslef. Its often after a string of ads are aired or circulated, that I get many calls from my most loyal clients, wanting to know what I could quote them etc. If you have proven your self as their preferred professional, they will come back to you.

  63. I think it is pathetic for individuals or consumers to try and mislead people to get business. I do not want someone promising me somethng they can not really do and I could not do that to someone else. I personally think it should be illegal and people should be held accountable if they are purposely misleading people about loan programs and rates.

  64. False ads can sure seem to be borderline. Just enuf truth to lead one to false assumptions. Can only say so much I guess but the clear and obvious should be up front.
    Are people really that gullible? Let the ignorant be ignorant still–if they will not verify.

  65. Yea all these false advertisements really take a toll on us LO”s as well. We have to explain to our clients on what they hear and why its like that and it just makes a lot of us look like liars. Its because the business is so money driven, and thats why the morales and ethics of this business aint put into practice anymore. It is said that money is the root of all evil. Well we can definitely see that in this business the greed and lies that are being told daily. People think its a joke, but were dealing with usually families biggest investments and finances which is there mortgage. And its sad cause most of us see it as a joke sometimes not knowing what effect it has on our clients. These false statements usually mislead clients and are used against them. Its that saying do whatever it takes to close the deal.

  66. The american consumers have been led around by false advertising forever. The regulation needs to be there to protect the consumer and I am sure our gov’t. sees the abuse. We are talking bottom line here and that is where will the funds come to oversee this? It is our duty to work ethically and give our knowledge freely to protect those who we work, our families and friends.

  67. I think this was the hardest part of my job as a LO, trying to explain to my clients some of those deceptive redio or TV adds, and come acorss as I’m telling the truth.

  68. Wow! What a geat point. At some point accountability has to master it’s way to the front of the class.
    Accountability, respectability.
    Deliver what you advertise and if not move on to a new profession. Jill honestly you are covering all the important topics. Stand and deliver.
    At some some point I do believe people what to be trusted. Can anyone actually calculate APR.
    Ths is the most important investment most people will ever have. We have a fudiciary responsibility to make it as suscessful for customers as if it where our own. In other words, give people a loan that you could live with, as if it was your own. What a novel idea…?

  69. Deceptive advertising has really upset me over the years. It is a shame that this happens, and a greater shame that people actually fall for this. I have been very adamant about correcting peoples beliefs that are based on this deception. There are so many ads that come across the web, junk mail, radio, etc. It hurts the industry beyond calculation.

  70. I agree the deceptive advertising could attract consumers who are not financially stable, i would consider that taking advantage of them. Especially ads like “If your mortgage broker charges any fees at all, they’re predatory lenders” If someone is fooled by that ad, he could be turning away from options that could better suit him.

  71. Self-regulation is a sure way of upgrading mortgage industry standards. Also, we will see our clients coming back to us if we establish good relationships with them and educate them so much so that they become wary of these ads.

  72. Radio advertising. I think that representatives of all trades should observe ethics. And if have incorrectly responded and morgich the broker that it is necessary to protect the rights. In general I think in the world all should be objectively, is not dependent that it is a loan, a broadcast, opinion of the scientist or another. All has subjective opinion, but a basis, the core should be objective.
    Concerning advertising it should be always truthful, truthful without an ambiguity/

  73. I think it is great that this article points out the fact that in the mortgage business we need to become more self regulatory. If we hear or see deceptive ads claiming things we know to be false, we need to do something about it. Like the article says, if we don’t take action and call the company out, who will? It is up to us in the mortgage business to take initiative and try to stomp out the companies advertising false claims.
    The more information a loan officer learns about such ‘no cost loans’ being advertised, the better able to explain to potential and existing clients the true meaning behind the words no cost.

  74. I like the comparison of how doctors, lawyers, and other professions don’t do the amount of backstabbing and deceptive practices as we see in the mortgage industry. I’m not sure why, but in the mortgage industry everyone seems so aggressive and wanting to ‘one up’ another that there is no standard professional ‘courtesy’ for the most part.
    Your 4 points/choices are very accurate. However, I am afraid, that the “do nothing” is normally the approach. And, of course, the whiners will continue to do nothing other then whine and blame others.
    Great article.

  75. I don’t know if there is any fool proof way to regulate this. Is there a way that a committee could be formed, that reports to DFI here in Washington, whose sole charter is to review radio advertising, and report back their findings. Then the offenders could be contacted by the State and made to change their advertising to conform to the law.

    What I do with my clients is to explain to them what is involved in a “No Cost” loan. I tell them up front that there is NO free lunch. The fees are going to be captured one way or another, and capturing them by increasing the interest rate, etc. is a lot more costly than paying them up front. Also, if the costs are disclosed, there is honesty in the entire transaction from the beginning. There is nothing worse than having costly surprises once the customers get to the closing table.

    Yes, we should police ourselves, somehow. However, the accountability and responsibility to be honest and truthful begins with each and every one of us.

  76. Industry peer recognition of misrepresentations should be just the start. I believe when a competitor boldly places deceptive advertising into an arena where they know their business peers will hear it, is a bit of a slap in the face. Tells me they don’t respect the competition enough to even consider how it could effect their standing in the lending community. Calling to question their advertising should, if nothing else, cause them concern and let them know even if the consumers are not listening, their competitors are. We all have time to help ensure our profession is one where ethics and professionalism are paramount to our ongoing success and sustainability.

  77. I liked the bit on self-regulation. I agree that if we all practiced this, eventually, the bad apples will fade away. The consumers I believe, will also become more savvy and recognize false advertisement when comparing the ad in question to the rest. I’m not traditionally a pessimist, but I never forget the old adage, “If it sounds too good to be true, it is”.

  78. the deceptive advertising makes not only the borrowers victims, but also some mortgage brokers victims. a lot of people call us and ask about the zero payment, no cost refinancing , 1% payment, and so on and i explained them the true sides of the programs and how they work with all the pros and cons then the borrowers went to another brokers who do not explain everything. this kind of ad makes the competition harder.

  79. This is something we all deal with in the industry and I do believe that we can self regulate and be successful at. Just as doctors, lawyers, accountants, etc have. We have a radio ad in Tacoma the name of the company is truth in lending! I think its pretty clever not sure what there business practices are. The deceptive ads hurt the industry it drives the consumer to the unethical Lender. How about the neg. am. loans with the 1% rate its difficult trying to convince a borrower which you don’t have an existing relationship with that the one 1% is only the payment and the actual rate is considerably higher. In fact the borrower allot of times thinks that your the unethical one

  80. I am disappointed that advertising in our industry has become so misleading. I could definitely see it getting worse, too, with restrictions getting tighter. I see self regulation as a great means to improve the misleading ads, but also I think educating clients is another important way to improve the situation. I actually had a close friend get qualified for a loan through another lender who was “doing the loan for free.” He came to me so I could do his loan for him, and I had to explain that there is more than one way that a LO can make money off a loan. Also, since he’s my friend if he is getting a better deal, by all means, he should go with that other lender.

  81. Once again, self-regulation seems to be the most effective solution. Also, making a conscientious decision to create honest and ethical advertising will hopefully, over time, cause those producing misleading ads to change their tune or lose so much business that they can’t afford to advertise. Can you imagine what it would sound like if the airwaves were only flooded with truthful mortgage advertising?

  82. Good points on self-regulation, however it seems hard enough to get everything done in the day without calling the one doing the deceptive advertising. I believe I will continue to educate my clients and associates on what is right, and put forth truthful advertisements myself to try to get more business.

  83. I agree with ….David Bragg
    It is a shame that we have to live in a society where deception rules and truth is alway laying away in the shadows.
    The real issue here is how to come across as being the one telling the truth.
    Is there a way?

  84. Cheaters never prosper……I just cringe when I see a commercial on TV or a radio add about the 1-3% rates……who wouldnt call but alls it is, is just a tactic to get you in the door! To speak the truth is to speack volumes…..and as soon as everyone understands that…at thawt moment we will begin to take society out of the shadows and into a world where our word actually means something again!

  85. I do marvel at all the advertising, still running, for mortgages in the media. The ads are largely an embarrassment to the industry. I cringe when I hear the outrageous claims & promotions for zero-cost loans & low, low rates…then to hear the firm quote the TIL as some means of making creditability for themselves & cloaking themselves in a document with an attractive name. My friends have commented on the proliferation of the radio ads & inquire why they are run so often. The ads create the impression that there must be lots of commissions in there loans, I suspect, otherwise why would they run so often? Jillayne’s point is well-made, do we hear the same type of ads for other ‘professions’; nope. Why not? I suspect the money in lending is the primary motivation for the on-going advertising. A wholesale representative, no longer employed, btw, told me of loan originators making $25K on a single loan…whoa! No wonder, this must drive the ads. I worked for a firm that ran such radio ads, the loan officers were told of the timing & to be around the phone, it was required actually. This type of practice only contributed to attracting the less-than-ethical mortgage brokers seeking only to pad their own pockets with high commissions. I was saddened by such tactics as clearly the loan officers were not seeking the best interest of the clients, only more money. The now ever-more popular & growing FHA loans, with stricter requirements, to replace the former sub-prime loans, should add to the reduction of fraud & abuse we have seen in lending. As the only outlet for low down payment purchases I hope the FHA will, in effect, eliminate the sub prime blow-ups.

  86. We as LOs definately need to better inform our clients how the industry works, not just to educate them, but to protect them from predatory and misleading advertising. When consumers know what to look for in an honest LO, they will know how to spot the bad apples. Self regulation is indeed necessary for the mortgage industry, as is the case in other professional industries, but to make it happen we need to work together.

  87. First we have to realize what advertising is. When spending money like that you need to have something that grab’s attention from the masses, separates you from the competition, and gives the person in need a reason to call you. If you’re like me when you hear add from a mortgage professional that is negative or may give us a bad name I cringe. Sometime you have to get creative to grab attention and get people to call. If the intent of the mortgage professional is good, the add doesn’t give our profession a bad name, and the add abides by state and federal regulations its ok to be creative. But there’s a fine line that shouldn’t be crossed!

  88. David asks:

    “The real issue here is how to come across as being the one telling the truth. Is there a way?

  89. Hey, has anybody noticed the lenders that have started advertising ONLY the APR, and NOT the terms.

    I have seen and heard some crazy low APR’s, that CANNOT be had with a 30 yr fixed (TILA, Ditech, etc).

    Let me us know.

  90. Every day when I am out on the field, going back to basics, hitting the pavement, realtors shops, buisnesses, etc, I find myself talking back to the misleading mtg radio advertisements that I hear repeatedly with such disbelief and disgust. I should be use to hearing it but working everyday as a professional trying to generate new business, it is just frustrating to know lenders/brokers are spending tons of money putting out ads like that and at the end of the day, closing loans to uninformed and helpless consumers. I certainly will next time do my part and pick up the phone and call these companies and also every opportunity I have, I will make sure anyone I discuss mtgs with are aware of the false advertisements out there and to be aware. Thats the least I can do.

  91. Maybe I was one of the naive ones, but I didn’t realize what a bad reputation the mortgage lending industry had until I started this class. I think there’s a lot of opportunity here. I especially like your suggestion that firms be respectful of each other in their advertising as well as truthful.

  92. It sounds to me like the ethical mortgage brokers and loan officers in the industry need to work hard to educate the public…probably one client at a time…about the misleading advertising that is going on out there. Doing so is difficult because so many consumers simply “shop rates”. But hopefully, though this meltdown, truth can be heard and integrity will stand.

    The L.O. who is mentoring me in the business has built his reputation on truth and integrity. That has paid off and his business is VERY profitable and well-known in our area. He doesn’t have to rely on deceptive advertising or any other gimmicks to bring in customers. Word-of-mouth has been the way he has built his business because people trust him. May we all grow our businesses that way!

    Thanks for sharing about the deceptive advertising that we all hear regularly!

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