Sample Mortgage Advertisements are Shown Below - Can You Spot the Issues in these Ads?

These Ads are Being Shown Not Because They are "Right" or Proper .....

Rather These Ads are "Wrong" - Can You Find the Mistakes in these Ads?

SAMPLE AD #1

SAVE OVER $135,545 IN JUST FIVE YEARS
Reduce your payment with a new
1.75% payment fixed for 5 years

Dear John Smith:

You’ve been pre-selected to receive this outstanding offer! We are offering loans with a payment fixed at 1.75% for five years.  Our records show this will save you $135,544.80 over the next five years.

By refinancing with Fictional Mortgage, you can immediately stop overpaying and start saving for the future.

This means money in your pocket to:

START SAVING MONEY NOW!!!
With today’s high cost of housing and living expenses, plus increasing employment uncertainty, isn’t smart to keep your payments low?  Take advantage of these savings and put your money to better use!  The savings that you can achieve may be your first and most important step to realizing financial freedom. 

Call us today at 800-555-5555 or visit us online at www.fictionalmortgage and use our 1 minute prequalification tool.

(please see reverse…)

Need Cash?
We have loans up to 125% of your
home’s value available to you.

At Fictional Mortgage, we realize that your situation is unique. That’s why we focus on your situation.  We can help you no matter what your situation is.  If you are self-employed or retired, have credit problems, filed bankruptcy – we can help!  Our highly trained professionals will guide you through the lending process in the least amount of time, with the least amount of stress to you.

We work with many lenders, with many programs,
so your loan is tailored to your needs!

If your need lower monthly payments because of a growing family or upcoming retirement, select a 30 year amortization and save money.  It’s a fact that most California homeowners move within 3-5 years, so why spend more money during that time? If you want flexible payment options, select a loan that offers a choice of fixed minimum payments, interest only, or full principal and interest based on your needs.

No Junk Fees

There are no “junk” fees!  We don’t charge application fees, credit report fees, administrative fees, or any other fees not associated with the processing of your loan.

Call us toll free at 800-555-5555 or prequalify online at www.Fictionalmortgage.com.

That’s all it takes for you to find out how we can help you.  Act now to take advantage of Lower payments and Savings.

Sincerely,

Joe Fictional, President

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Weaknesses of this ad #1:

1. No Disclosure of the APR: Shows payment but the APR is not shown in the ad. This is a violation of Regulation Z and the Truth in Lending Act.  The rule is that if you are showing the payment, you have to show the interest rate, the terms of repayment, and the APR.

2. Potential Misrepresentation. The advertisement claims that the borrower could “save over $135,545 in just five years”.  However this claim misrepresents that likely a large portion of these savings is offset by the increase in principal balance that will result if the borrower makes only the minimum payment during the first five year period.  Remember, on these “option ARM” loans that negative amortization will result if the borrower makes the minimum payment since the minimum payment does not pay all of the interest that is due each month. Such unpaid interest is added to the principal balance of the loan in each month that the consumer makes the minimum payment.

3. Suggestions for Option Arms ads:

Explain how the program works – make it clear that if the borrower pays the 1.75% rate, negative amortization will occur and unpaid interest will be added to the principal balance of the loan.

Also, it has been required by federal regulators and the majority of the states who have recently frowned on the use of exotic mortgage products such as the MTA Option ARM that the worse case scenario rate and payment amounts should be disclosed to the borrower. The main goal is to ensure consumer awareness of the dangers posed by these loan products if the consumer can only afford the minimum payment.

4. Ad does not comply with the Guidance on Nontraditional Mortgage Products

There are new required disclosures for Non-traditional Mortgage Products. Nontraditional mortgage products include your Option Arms (that have the potential for negative amortization) and loans that have “interest only” provisions.  Note that the guidance suggests that lenders and brokers should provide a balanced disclosure of the benefits and risks of Option ARMs and Interest only products.  This disclosure must be included in all promotional materials (advertisements) for these products.  A clear disclosure of the risks involved in payment option ARMs should be included in the advertisement.

SAMPLE AD #2

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Kurt Brownfield,

When your Home Loan with Bank of America funded, you became eligible to receive a $100,000 CASH ADVANCE (or more) with no Equity Limitation. Our unique 1-2-3 EXPRESS Loan requires merely one 5 minute phone call from you, then we can do the rest!!  Receiving our loan is EZ as 1-2-3, it’s just that easy!  Follow these three simple steps to receive your funds:

• 1)   CALL US TO INITIATE THE LOAN,
  2)   TAKE 5 MINUTES VERIFYING THE FACTS WITH US,
  3)   HAVE LOAN DOCUMENTS DELIVERED TO YOU!!

HERE ARE JUST SOME OF THE ADVANTAGES OF OUR 1-2-3 EXPRESS LOANS:

YOU MAY USE OUR CASH PROCEEDS FOR ANY PURPOSE AT ALL. NO STRINGS ATTACHED

YOUR ELIGIBILITY EXPIRES JANUARY 20, 2005, WE HAVE LIMITED FUNDS AVAILABLE FOR
THIS PROGRAM. YOU WILL NOT BE CONTACTED AGAIN.

FOR MORE INFORMATION CALL TODAY!!!
1-888-555-5555
OR VISIT OUR SECURE WEBSITE AT www.montymortgage.com and SAVE!!*

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Discussion regarding Ad #2:
Simulated Check

Weaknesses of this ad:

Ad has a simulated check which is not permitted in a few states.

Exclusions on the “no equity limitations” are not explained – ad should state the maximum loan to value (such as 100% or 125% maximum LTV (loan to value)) allowed and any other restrictions on such loan program.

Ad does not really have any trigger terms so additional disclosures under the Truth in Lending Act are not required. Nonetheless, it would be better if the ad provided more detail about the terms of the $100,000 loan being offered. Is it a fixed rate program or it is a variable rate program, etc.

Ad mentions a current loan held by Bank of America but does not have the required disclosures to explain that Monty Mortgage is not associated with Bank of America.

Ad mentions “Consult your tax advisor” but makes no reference to a statement regarding tax deductibility of the interest on the loan. As such, such reference to “consult your tax advisor” is unnecessary.

Strengths of this ad:

The Strenghts of this ad are discussed more fully in our training materials. Click here to learn more about our free guide on How to Set Up an Integrated Advertising Review Process.