Mortgage ads under FTC scrutiny E-mail
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The Federal Trade Commission has issued a warning about "potentially deceptive" advertisements for low-cost mortgages, saying consumers could be duped and mortgage companies might be breaking the law.

"Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story," said Lydia Parnes, director of the FTC's Bureau of Consumer Protection.

The agency sent warning letters to more than 200 mortgage brokers, lenders and media outlets expressing its concerns. Advertisers were advised to review their ads to make sure they complied with the Truth in Lending Act and other laws and guidelines. Newspapers, television stations and other media were being asked to screen for misleading ads to protect readers and viewers.

The suspect ads were flagged in June during a nationwide review, the FTC said.

Some of the ads touted rates as low as 1 percent but failed to adequately disclose that it was a teaser rate good for only a short time, the agency said. Other ads promoted low monthly payments but didn't fully disclose terms, including payment increases and a final balloon payment.

Disclosures have to be clear, not buried in fine print, the agency said.

Regulators have stepped up scrutiny of the home mortgage business amid the subprime lending meltdown. Deceptive marketing likely contributed to the crisis by luring unsuspecting home buyers into loans they couldn't afford, experts say.

The FTC issued a consumer alert to help people recognize deceptive mortgage pitches. Called "Deceptive Mortgage Ads: What They Say; What They Leave Out," it is available at www.ftc.gov.

Some of the questions the bulletin recommends consumers ask before taking a mortgage include:

What will the monthly payment be for every month of the loan, and could it increase? When could it increase? What would the new payment be?

Does the monthly payment include an escrow amount to pay for property taxes and homeowners insurance? (If not, ask for an estimate for those costs.)

What is the term of the loan, such as 15 or 30 years? Would the loan be paid off at the end or would a balloon payment be due?

Are there prepayment penalties for refinancing or paying off the loan early? If the loan has an introductory teaser rate, are there penalties for refinancing before the rate resets and payments go up?





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