Be careful where you click! Too-good-to-be-true loan offers on the Web can lead to a barage of phone calls.

The San Francisco Chronicle

Ever get one of those pesky e-mails advertising what seems like a ridiculously low mortgage rate?

Guy Schwartz did, and he didn’t like what he found.

After receiving an e-mail titled “3.75% for 30-year fixed-term mortgage!” the Moraga mortgage broker filled out an online loan request form. Within days, Schwartz was bombarded with calls from mortgage brokerages.

But when he asked about the 30-year, 3.75 percent fixed rate, Schwartz said the brokers, who had purchased Schwartz’s information from a so-called lead generator, “just about laughed at me.”

Upon closer inspection, the ad offered a 3.75 percent fixed term – as in 30 years – not a fixed rate. In other words, the rate may have been 3.75 percent for three years and then floated up to the prevailing rate. The best rate Schwartz could have gotten for a true 30-year fixed-rate mortgage in September when he received the e-mail was about 6 percent.

“This is like going to those sites where you see a digital camera advertised at a really low price, and then you try to buy it, and the price is higher or it’s out of stock,” Schwartz said. “As a consumer, I felt like I was going through that same road to deception, and it burns me.”

As rates have risen and refinancing activity has plunged, competition for home loans has reached a fever pitch in recent months. While many mortgage brokerages deliberately advertise teaser rates designed to generate an immediate consumer response, some firms — or the lead generators they hire to blanket the Web with e-mail ads — have crossed a line, consumer advocates say. And despite recent regulators’ and legislators’ efforts to stem the tide of spam, some consumer advocates say the ubiquity and relative anonymity of e-mail will allow such ads to multiply exponentially.

Schwartz has received countless e-mail messages from lead generators touting super-low rates; but his curiosity was peaked when he saw the 3.75 percent promotion.

Schwartz — a 17-year veteran of the mortgage business — had to read the e-mail’s subject line six or seven times to detect the catch. And while any consumers who received that e-mail would eventually have learned that the 3.75 percent rate wasn’t fixed for 30 years, they may have unknowingly opened their phone, e-mail and fax to countless banks and mortgage brokers.

“This is a deceptive practice, and it may be a violation of state unfair business practice laws ” because these e-mailers are competing in the marketplace essentially by lying, said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica and the author of
“Corporateering: How Corporate Power Steals Your Personal Freedom … and What You Can Do About It”.

That brings up another big criticism of such marketing tactics: According to officials at the Federal Trade Commission, these pitches may violate a recently enacted federal law designed to restrict telemarketing. The measure, which allows consumers to add their phone numbers to a national do-not-call list to avoid those familiar dinnertime sales calls, went into effect Oct. 1.

Although the registry has faced legal challenges, more than 50 million consumers have signed up.

The measure doesn’t prohibit calls from nonprofits, political groups or businesses with which consumers have an established business relationship.

That last exception seems to provide some wiggle room. After all, if consumers fill out an online loan request form, haven’t they asked to be contacted by mortgage brokers?

Not necessarily, say FTC officials. If a consumer on the do-not-call list is not explicitly told that ABC Mortgage may call him if he responds to an online advertisement from a lead generator, a subsequent call from ABC Mortgage may be a violation of the do-not-call rule because it is the lead generator — not the mortgage broker — that has a relationship with the consumer. Fines run as high as $11,000 per violation.

“No one can transfer an individual-established business relationship,” said Catherine Harrington-McBride, an FTC staff attorney.

(On Tuesday, President Bush signed a federal anti-spam measure aimed at cracking down on the flood of unwanted and misleading e-mail messages hawking everything from weight-loss programs to pornography. And on Thursday, New York State Attorney General Eliot Spitzer sued several firms for sendin allegedly misleading bulk e-mail. However, consumer groups say people are unlikely to see any immediate decrease in spam, in part because some of the worst spammers are based overseas).

Direct-marketing industry officials see things differently. According to Patricia Kachura, if a consumer fills out an online form requesting information about mortgages or other financial services, he should expect to be called.

“That’s fair game because the consumer has full knowledge that they’re asking for more information,” said Kachura, vice president of ethics and consumer affairs at the Direct Marketing Association. “And it’s a great system for consumers because it lets mortgage lenders compete for your business.”

That said, Kachura warned that any business hoping to dupe consumers by using false advertising is asking for trouble. That includes mortgage brokers who hire lead generators.

“Whatever type of firm they’re hiring, it’s their obligation that their suppliers follow U.S. laws.”

Several mortgage brokers contacted by The Chronicle said they do not employ deceptive advertisements or contract with lead generators that do. But as Schwartz’s experience and swollen e-mail inboxes nationwide attest, such promotions are common.

Schwartz tracked the source of his calls to ELeadz, an Aliso Viejo (Orange County) company that buys and sells mortgage leads. According to Schwartz, officials there told him they had received similar complaints and had stopped buying leads from the company that sold ELeadz Schwartz’s information. They would not disclose the firm, but Schwartz said he tracked the Web site to a Hong Kong business.

ELeadz also sent Schwartz its lead purchase contract, which stipulates that a lead will be considered invalid if it has been generated “through an advertisement specifying terms (e.g. 30-year fixed loans at 3.5 percent)”.

Officials at ELeadz, as well as a half-dozen other lead generators across the United States, did not return calls.

While mortgage brokers said they shy away from lead generators that offer too-good-to-be true rates, some noted they do not actively monitor how their lead lists are compiled or cannot control how all of their loan officers land clients.

For instance, BLS Funding of Jericho, N.Y., said that as a company it does not buy leads and it maintains its own marketing department which offers only “realistic, attainable” interest rates. However, after a Chronicle reporter asked about the fact that BLS had contacted Schwartz after he responded to the 3.75 percent ad, the company said that some of its individual loan officers may subscribe to online lead generators. Many lead generators offer free memberships, but charge upward of $20 per lead.

“We’re a big company, so we can’t put our fingers on what every one of our 300 loan officers is doing,” said Chris Consorte, BLS director of marketing. “It falls into the uncontrollable. We frown on it, but we can’t exactly control it.”

While some mortgage brokers may be turning to lead generators, official trade groups are trying to distance themselves from such practices. They say increasingly misleading e-mail ads soil a reputation already damaged by the throngs of unprofessional sales people who have joined their ranks in recent years.

“We’ve had a lot of new people come into the market because it’s been a boom area,” said Leon Huntting, president of the California Association of Mortgage Brokers. “Because these people have been so spoiled by the amount of business out there in the past few years, they’re going to lead generators (as business slows down). But these people aren’t relationship-oriented; they’re
transaction-oriented, which to me is exploitation.”

As with most issues that deal with the interplay between corporate America and Joe Consumer, the two sides are sharply divided on the solution to deceptive online mortgage marketing tactics.

Consumer groups say the answer lies with regulation that would levy fines or suspend the licenses of companies that use or hire misleading ads designed to subvert the do-not-call registry.

Others, like Huntting, say appropriate false-advertising laws are already on the books. Instead, he warns consumers to cast a skeptical eye on their in-boxes.

“Most people don’t understand the mortgage process. They see a really good rate and they get mesmerized by it,” Huntting said. “People just need to ask some basic questions.”
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Look before you leap

Those who choose to respond to a mortgage rate offer in an e-mail should be wary:

— If you decide to fill out a form that requires personal information, look to see whether the form includes a disclosure about what will be done with your information. If there is no disclosure, it may mean a lead generator intends to sell your information to several — or many more — brokers or financial services companies

— If you are subsequently contacted by a mortgage broker and interested in ots products, find out who the broker of record is, whether he is authorized to do business in California (and if so, his state license number) and ask for references

— Get written confirmation of rates and terms discussed. Have it signed by the broker, not the loan agent

— If you believe the original e-mail ad contained deliberately misleading information, contact your local district attorney’s office about filing a complaint

— If you are inundated with unwanted phone calls after filling out an online loan request, ask to be taken off of the firms’ call lists.

Source: California Association of Mortgage Brokers, Chronicle research
E-mail: Kelly Zito at [email protected]