The FTC and the Consumer Financial Protection Bureau have announced that they are beginning a broad series of investigations into potentially deceptive mortgage ads. Given that the CFPB has been a highly aggressive regulator so far, it is likely that we will continue to see it pursue lenders that are engaged in deceptive advertising.
According to the CFPB, many of these deceptive ads appear to target veterans and the elderly. Here are four important tips from the CFPB:
- Official-looking seals or logos that imply some kind of government status, for example making you think they come from the VA or HUD. Although government agencies do guarantee some loans, they are not involved in the actual lending or advertising of loans.
- Promises of amazingly low rates - which may turn out in the fine print only be in effect for a short period and then will readjust to a higher amount.
- Promises that a reverse mortgage will let you stay in your home payment-free. Typically borrowers with reverse mortgages still have to keep up with tax and insurance payments - and will most likely lose their homes if they don't.
- Announcements of "pre-approval" and large amounts of cash or credit available to you. Typically there's no guarantee that you will be approved for a loan, or the size of the loan, until you go through a standard qualification process.
By far one of the most important tips is the one regarding reverse mortgages. A reverse mortgage sounds like a great idea -- cash out on your home and not make a mortgage payment. However, the reverse mortgage does not absolve you of the responsibility to pay your property taxes and any homeowner association dues you my owe. Depending on your state's laws, failing to pay those items can result in you losing your home.
Even if this information is disclosed at the closing, many borrowers feel that they cannot back out once the papers are in front of them. These kinds of tactics ultimately result in people taking loans that will ultimately cause them harm. Given the CFPB's track record so far, I am tempted to hold out hope when it makes loud noises about enforcing the law.
You can read the CFPB's press release here. The FTC's press release is available here.