Home loan advertisers failed to disclose key loan terms in ads

WASHINGTON – Jan. 12, 2009 – Some mortgage offers “too good to be true” aren’t true. The Federal Trade Commission announced a settlement with three lenders – one in Florida – who violated FTC law by misleading potential borrowers by allegedly touting low monthly payments and rates without fully disclosing loan terms. The lenders have agreed to settle FTC charges that their ads violated federal law.

According to the FTC’s complaint against Florida-based American Nationwide Mortgage Co., a direct mail ad for the company states, “30-Year Fixed. 1.95%.” However, a fine-print, virtually illegible footnote at the bottom of the ad states, “4.981% Annual Percentage Rate,” and a fine-print disclosure on the reverse side of the ad states, “Initial Annual Percentage Rate (APR) for a 30 year mortgage loan with 80% loan to value is 4.981%. Rate is fixed for 12 months and adjusts upward 7.5% of the payment amount annually for the first ten years of the loan …” In addition to the other charges, the FTC alleges that American Nationwide violated the FTC Act by falsely representing that its advertised rate is a fixed rate for the full term of the loan.

According to the FTC, all three companies’ ads indicated that people could receive mortgage loans at the terms prominently stated. However, in violation of the FTC Act, the ads allegedly failed to disclose, or failed to disclose adequately, that the advertised low monthly payment amounts and low rates apply only for a limited time, after which they increase, and that the advertised payment amounts and rates did not include the interest owed each month, with the interest added to the total loan balance.

The FTC also charged the mortgage advertisers with violating the Truth in Lending Act (TILA) and its Regulation Z by stating periodic payment amounts, but failing to disclose clearly and conspicuously the repayment terms, the annual percentage rate (APR), and an explanation that the APR could be increased during the loan period. They also were charged with failing to disclose clearly and conspicuously the rate of finance charge as an APR, using that term; the APR, stated with, and at least as conspicuously as, the stated simple annual rate; and required payment rate disclosures.

The FTC also charged California-based Michael Gendrolis, doing business as Good Life Funding, a direct mail ad for the respondent states; and California-based Shiva Venture Group, Inc., doing business as Innova Financial Group.

© 2009 FLORIDA ASSOCIATION OF REALTORS®

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