Mortgage lenders rethink strategy

The direct marketing practices of mortgage lenders are under scrutiny, in a shrinking market with increasing defaults causing mortgage lenders to rethink their direct mail strategy.

The Federal Trade Commission and Attorney General in the states of Ohio and New York are investigating the direct marketing practices, especially direct mail and Web advertising, of these mortgage lenders. This is part of what they describe as a review of banking practices.

A major area that regulators are looking into is advertising that promises low payments without proper disclosure of all the strings attached.

Back in June, regulators found that advertising is one of the three top areas where mortgage lenders need to be more cautious.

Ohio Attorney General Marc Dann’s office has been investigating fraudulent mortgage ads for some time now and has found that the majority of these solicitations are aimed at low-income and minority neighborhoods.

So far Dann’s office has sent 30 lenders letters asking them to validate their offers, one of his representatives confirmed. Dann was not available for comment.

Fraudulent mortgage ads are a big problem, according to Steve Walsh, president of Scout Mortgage.

“You can’t go online without being hammered by them,” Walsh said. “Typically, the goal of the company using these ads, or direct mail, is to entice a person into calling.”

GMAC, a major mortgage company who spent $46.2 million on mortgage ads in June alone, said that its advertising practices were constantly under review.

“GMAC ResCap and our subsidiaries continuously adjust our advertising to deliver the right message, to the right people, at the right time, in order to drive customer inquiries to our retail loan offices, Web sites or the appropriate toll-free number,” said Brett J. Weinberg manager of public relations at GMAC ResCap. Weinberg would not go into further detail as to how advertising output had changed in light of the current crisis.

Walsh continued, “The problem with [misleading] ads is that they interfere with the honest mortgage brokers who are trying to help a borrower and they can put the borrower into a really bad loan.”

“Criminal fraud is the worst in the direct mail market,” said Patricia McCoy, a law professor at the University of Connecticut who has studied mortgage advertising. “Fraudulent, unclear ads are more prevalent in direct mail because it is harder to monitor since the ads are sent directly to people’s houses as opposed to an ad in The New York Times.”

McCoy said that direct mail from well-known companies usually complies, and recipients should ask the lender how the loan works, and if it costs more according to credit.

On the other hand, she warned that a mail piece from an unfamiliar lender may well be fraudulent. “Some examples I have seen are the lenders that claim the government endorses them,” she said. “If it looks too good to be true it is. The mortgage market has really tightened up. Baby boomers have a huge equity at home and that makes them good candidate. As they get older they become more and more apt for these types of scams.”

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