They gouge you, even as you lose your home:
"As Woes Grow, Mortgage Ads Keep Up Pitch" by LOUISE STORY and VIKAS BAJAJ
Wall Street may have soured on the mortgage business. But on television, radio and the Internet, the industry is as ebullient as ever.... Mortgage lenders have spent more than $3 billion since 2000 on advertising on television, on radio and in print.
That figure does not include direct mail and Internet advertising, which are increasingly popular vehicles for the industry. Nielsen/NetRatings estimates that mortgage companies spent $378 million in the first six months of this year on Internet display ads, and many companies also buy search advertising.
Consumer advocates say many ads are at best misleading and at worst steer consumers into risky loans with promises of low introductory rates that do not make clear that they could pay significantly more in a few months or years.
Patricia A. McCoy, a law professor at the University of Connecticut who has studied mortgage advertising:
“The advertising was a drumbeat to consumers, saying: ‘Don’t worry, you can qualify for a loan. We will approve it.’ It was push marketing to reach out to these people on the sidelines who have doubts about their ability to pay a mortgage and lure them in.”
[And that's all YOUR FAULT, Mr. and Mrs. Wanna-be-home owners]
Even when consumers do find out about higher rates before closing on a house, by that time they are often “psychologically committed” to buying, Ms. McCoy said.
Quicken Loans was one of the many mortgage companies that benefited during the housing boom. The company, based in Livonia, Mich., near Detroit, wrote $18 billion in loans last year, up from $4.6 billion in 2001.
Even during the tough market this year, Quicken Loans expects to make more than $20 billion in loans. Not coincidentally, Quicken Loans also pumped money into its advertising over that period — increasing it to $51 million last year from about $3.5 million in 2002, according to estimates from Nielsen Monitor-Plus.
Through June, Quicken Loans spent $37 million on mortgage ads — second only to GMAC, which spent $46 million. Quicken Loans would not confirm how much it spends on advertising but executives acknowledged that such spending had significantly increased.
Quicken Loans has found that 40 percent of its business come from referrals or returning customers, Mr. Stapp said. The remaining 60 percent depend on new people picking up the phone or clicking on its Web site. The company also provides free videos and articles about the mortgage and real estate market for use by any Web site and many Realtors, bloggers and others post the information — along with a link to Quicken Loan’s site.
The company does not plan to cut back on advertising for the rest of the year, Mr. Stapp said. That will be a relief to media companies, which have benefited from the influx of spending.
But Countrywide Financial, the nation’s biggest mortgage company and a leading advertiser, recently said it would cut back on many popular loans because of its financial troubles. Some advertising executives expect mortgage ad revenue at Web sites will drop significantly.
[Another dot.com bubble, 'eh?]
Housing analysts said the increase in home prices may have been propelled by ads from companies like Quicken Loans, which ran TV spots with pitches like: “Your payment can be lower than you ever imagined.”
In its ads, Quicken Loans suggested that consumers could pay off credit card bills, remodel their homes and lower their monthly payment if they got a Secure Advantage mortgage, which allowed homeowners to roll what they would have paid in interest into the amount they owe.
Many critics consider such mortgages, known as payment-option loans, dangerous for all but the most sophisticated borrowers, because many homeowners do not realize that making just the minimum payment will mean they owe more on their house with each passing month.
The company says it no longer offers that mortgage. But Quicken Loans posted one of the ads on YouTube and it was up as recently as Aug. 7. The radio version of the ads has run several times this month, according to Competitrack, a company in New York that tracks advertising.
Quicken Loans says that even when it was advertising Secure Advantage, it did not make many payment-option loans. The company also said it made few loans to subprime borrowers — homeowners who have weak or blemished credit records.
Steve Walsh, a mortgage broker in Scottsdale, Ariz., said he spends a lot of time counseling clients against taking out loans that promise a deceptively low payment rate:
Mr. Walsh said referring to the payments consumers would need to make to pay off their loan on a 30-year schedule:
“These guys say your payment will be $500 a month, but nowhere do they say that your actual payment is $3,000 a month. It should be criminal. The disclosures are usually complicated, and people don’t know what hit them.”
The other thing that surprises consumers is that some mortgage companies do not return the mortgage application fees if the mortgage is not approved.
[Barnum would be proud and happy, even today!]
