I recently attended a webinar on the topics of fair lending and ethics in advertising.
Hosted by Bank of America, this excellent course was designed for loan originators who offer home equity conversion mortgages (HECM’s — otherwise known as reverse mortgages).
While it is my personal philosophy that these products should be offered sparingly, they can be a true game changer for seniors with limited cash flow and substantial equity in their homes.
I commend Bank of America for investing the time and effort to discuss advertising methods that are unacceptable practices in their view.
I now will present the six prohibited advertising actions that were highlighted in the webinar.
As the information was presented, it can be used as a guide to avoid unethical advertising for any type of mortgage.
Advertising a “no cost” loan — All loans have expense.
While some (or most) of the closing costs can be absorbed by the lender, there is a cost to the consumer in the form of a higher interest rate.
Failure to disclose and explain the higher interest rate is considered an unethical practice by Bank of America.
Use of celebrities — While some companies enter into contractual endorsements for advertising purposes, name dropping to imply credibility is not acceptable.
A television advertisement with spoken testimony is legitimate advertising. Inserting the name of an elected official into print advertising should be viewed with an air of caution.
Pre-approval — It is a misrepresentation to imply that you are automatically pre-approved for financing without clarifying the requirements for receiving pre-approval.
As the saying goes, if it sounds too good to be true, it is.
Stimulus money, a call to action, or a sense of urgency — Basically, this is a caution to avoid exhortations to “act now!”
This is more relevant with home equity conversion mortgages because the process requires measured steps to protect the consumer.
Traditional mortgages can be affected by rising interest rates, changes in underwriting guidelines and product availability, or — as we have seen in recent years — declining home values.
Therefore, a loan officer may caution a borrower to be expedient in their decision-making.
However, high pressure tactics may be a warning sign. Also, vague references to government stimulus money is a common practice in mass advertising from questionable sources.
Simulated checks and currency — Again, these attention grabbing methods are particularly unadvisable in reverse mortgage advertising.
Mass advertising operations will imply that the funds will be immediately cashable with minimal requirements for qualifying.
In today’s strict underwriting environment, that is a gross misrepresentation.
Use of Federal Housing Administration or Department of Housing and Urban Development logo — Any attempt to imply that the solicitation is coming directly from a federal agency, either by use of its name or logo, is likely to be a red flag.
In closing, it is my observation that the last three practices are often used in combination to distract and entice consumers.
If you receive an unsolicited offer to take advantage of a special loan program, look for these telltale indications that more investigation is required.
During the subprime debacle, many solicitation mills rose up out of the Orange County area in Southern California.
While there are many reputable and long standing mortgage operations down south, I am distressed by the pure cheek exhibited by some advertisers.
Despite significant efforts to regulate the mortgage industry and curtail deceptive practices, I still receive examples of print and electronic advertising that belong in fantasyland.
As has always been the case, caveat emptor (buyer beware) is a valid axiom. You should engage the services of a loan officer who is endorsed by several parties who have knowledge and past experience with that individual.
David Ryland is the acknowledged dean of loan originators at Big Valley Mortgage in Roseville. He has 30 years of experience as a loan officer, manager, trainer and mentor. He can be reached at dryland@apmortgage.com.
