THE NATION - Refinance pitches in sub-prime tone
"Congratulations!" Irvine mortgage brokerage Sunwest Lending Group wrote in a recent mailing to a Sherman Oaks homeowner.
"You have been selected to substantially reduce your mortgage payment," the flier says, dangling a monthly payment of only $1,190 based on a 1% interest rate. Buried in the fine print is the disclosure that paying the temptingly low amount would actually increase the homeowner's loan balance.
Despite the mortgage meltdown, the blizzard of advertising for home loans continues. With the sub-prime market in tatters in the wake of record defaults and foreclosures, fewer pitches scream "Bad credit? No problem!" Instead, lenders struggling to remain profitable now are targeting people who have good credit and plenty of home equity.
With fewer homes being sold these days -- and therefore fewer loans taken out to finance purchases -- it's only logical that the mortgage firms that survived the sub-prime shakeout are focusing their marketing on getting homeowners to refinance.
The lenders promote refinancing as a flexible tool, saying that, among other things, it can reduce bills by lowering interest rates and stretching out payments. But critics say the offers often appeal to the same inclination that led many sub-prime borrowers astray -- the tendency of people to live beyond their means by using their home equity as an ATM.
"It's all the art of distraction," said Bruce D. Miller, chief executive of Dailey & Associates Advertising in West Hollywood. "For some people, all they care about is the monthly payment. And that keeps them from digging in and concentrating on the hidden elements."
The Federal Trade Commission sent warning letters last month to 200 lenders, brokers and other mortgage-market participants about ads the agency considered misleading.
The most problematic mortgage pitches are those that tout low interest rates or payments but play down the fact that they are temporary, or don't disclose it at all, FTC senior attorney Lucy Morris said.
Countrywide Financial Corp., the nation's largest mortgage lender, regularly barrages existing customers with pitches for new loans, encouraging them to cash out some of their home equity and saying they may not need to get an appraisal or prove their income. The company has a lot of customers to sell to because it handles the servicing -- sending bills, collecting payments and sometimes foreclosing on property -- for 1 of every 7 mortgages in the United States.
