CFPB, FTC Put 'Misleading' Mortgage Ads in Crosshairs

WASHINGTON — Federal regulators announced a joint crackdown Monday on certain mortgage advertisements that four years after the housing debacle are still too good to be true.

The Consumer Financial Protection Bureau and Federal Trade Commission said 51 nonbank firms involved in mortgage lending or other areas of the housing market were under the microscope for alleged ads with potentially false information about interest rates, laid-back approval processes, purported government affiliation and other improbable claims.

The joint move, one of the CFPB's first enforcement-related actions against nonbanks, included letters to 32 firms — 12 issued by the CFPB and 20 by the FTC — warning them of possible violations of a 2011 rule barring misleading claims in mortgage ads.

The CFPB is formally investigating an additional six firms for possible violations, while the FTC has launched 13 formal investigations. The agencies, which called their joint action a "sweep" of mortgage-related ads, said they looked at about 800 ads as part of the review. (They did not identify the companies being targeted.)

"Misrepresentations in advertising for mortgage products pose a significant risk of harm to consumers because they can confuse and mislead consumers when they are making one of the biggest financial transactions of their lives," Kent Markus, the CFPB's assistant director for enforcement, said in a conference call with reporters.

At issue is the continued existence of ads in various media that, to an objective eye, carry unrealistic claims. The FTC posted samples of "mock ads" illustrating the agencies' concerns, promising features such as 2.25% fixed rates on Federal Housing Administration loans. In another example, an ad promoted "Guaranteed Approval!" to finance purchases of homes with "gardens galore" or a "gourmet kitchen." The agencies also said they were zeroing in on ads with questionable claims about firms' U.S. government affiliation.

"Baiting consumers with false ads to buy into mortgage products would be illegal. We will conduct a fair and rigorous investigation into these issues and will take appropriate action for any violations we find," CFPB Director Richard Cordray said in a press release.

The letters warned each recipient they could be in violation of a 2011 FTC regulation known as the Mortgage Acts and Practices Advertising Rule, which is now jointly enforced with the CFPB. The rule states that a "material misrepresentation, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product" is illegal under federal law. (The so-called MAP Rule does not apply to federally regulated depository institutions.) In issuing the letters, the agencies also cited their authority to enforce prohibitions of "unfair, deceptive or abusive acts or practices" by financial providers.

The CFPB said it was specifically concerned about mortgage lenders and mortgage brokers targeting older Americans and military veterans through misleading ads. In a notice on the bureau's website corresponding with the joint announcement, Holly Petraeus and Skip Humphrey, who lead the agency's efforts, respectively, on military veterans and older Americans, warned consumers to be on the lookout for certain suspicious marketing features, such as "official-looking seals or logos that imply some kind of government status."

"You know the old saying: ‘If it sounds too good to be true, it probably is,'" Petraeus and Humphrey said. "Some advertisers will use your military or veteran status as a way to approach you, promising special deals or implying [Veterans Administration] approval. Others will use the lure of a ‘no-payment' reverse mortgage to troll for older Americans desperate to find a way to stay in their home when they can no longer afford a mortgage payment."

Officials said while such ads are less frequent now compared to during the boom, optimistic signs about an impending housing recovery demand scrutiny of how providers are marketing mortgage products.

"Mortgage markets and mortgage advertising … [have] been down over the last few years as a result of the economic downturn," Thomas Paul, an assistant director at the FTC, said on the call. "It may well be that mortgage advertising and mortgage lending will be ramping up in the near future, and one of the things we wanted to do through conducting this sweep was make sure that when mortgage advertisers start disseminating claims again that they are aware of their obligation to make sure that none of those ads contained deceptive claims."

The joint review covered ads for actual loans, refinancing and reverse mortgages, and included ads appearing in newspapers, websites and mail solicitation. The review found that ads were spreading potential misrepresentation suggesting companies had government affiliation, potential inaccuracies about a product's low interest rates and misrepresentations about the costs of reverse mortgages, among other potential violations.

"For example, some ads contained a mock check and/or suggested that a consumer has been pre-approved to receive a certain amount of money in connection with refinancing their mortgage or taking out a reverse mortgage, when a number of additional steps would customarily need to be completed before the consumer would qualify for the loan," the bureau said.

While the CFPB focused mostly on ads directed at older Americans and veterans, the FTC's review looked at home builders, Realtors and "lead generators."

Paul said that despite the cooperation between the two agencies in doing the review, they did not want to duplicate any investigation against specific companies.

"By separating out who we're looking at, we will avoid double-teaming businesses," he said. "We wanted to look at the ads together so that we were applying a consistent framework in looking at ads. But when it comes down to investigating and following on with cases, we're going to be doing them separately."