On aol.com this week, the Internet-based loan company Lending Tree offered "bad credit options" and a $425,000 loan for only $1,376 a month. Countrywide Financial Corp., the largest US lender, declared "Bad Credit? Call Today. Refinance or Tap into Your Home's Equity" in an online ad from its Full Spectrum Lending Division.
No-money-down mortgages and subprime loans that catered to people with spotty credit are quickly disappearing as lenders tighten their standards in response to a rise in foreclosures. But you wouldn't know that if you looked at the ads that some banks and loan companies have placed on the Internet and in newspapers, often right next to the very stories chronicling the meltdown of the mortgage industry. So what's with the mixed messages?
"It's been a common feature of advertising," said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America. "They of fer their products not around interest rates but among monthly payments, ease of access, among 'you're more likely to get a yes with us than with others.' I don't think that has changed in this environment."
Even though dozens of lenders have shut down their mortgage operations or laid off employees, many others are trying to generate interest among potential borrowers even if they ultimately cannot qualify them for loans.
"It's important to point out that there are loan options available for borrowers with lower credit scores in today's market," said Darren Beck, senior vice president of marketing for LendingTree.com, in a written response to questions.
So is it wrong to market no-money-down, interest-only, or other alternative mortgages to people with poor credit?
"There's nothing necessarily wrong about lending money to people with bad credit," said David Nahmias, US attorney for the Northern District of Georgia, who has worked on mortgage fraud cases. "Our concern is more the independent mortgage brokers who will try either to trick people into purchasing properties they really can't afford, solicit those people to lie, let them use their identity or credit so they can perpetrate mortgage fraud."
The Federal Trade Commission has investigated lending institutions for being misleading, offering low rates, for example, without disclosing that they increase after a certain period of time. Offering a loan that does not exist would also violate federal laws, said Peggy Twohig, associate director for the division of financial practices at the agency.
Twohig said the FTC is monitoring all mortgage-related ads and recently has spotted some that are of concern, but she declined to name the companies. "It depends on exactly what they say, how they say it, how big and bold things are titled, what is said in the small print," she said.
Mike Larson, a real estate analyst for Weiss Research Inc. in Jupiter, Fla., said "the nicest" way to describe these companies is that they are "optimists," adding, "Even if they get a customer in the door this way, it's going to be a lot harder to qualify that customer than it was six months ago."
Many big lenders were able to make home loans by packaging them into bonds and selling them to investors. Now the investors don't want to buy these bonds.
Consumer advocates advise borrowers to be skeptical.
"The advertisement component has been such a big part of their entire business model," said Kirsten Keefe, founding director of Americans for Fairness in Lending, an umbrella group for consumer groups. "It's been part of the bigger picture of helping people take out loans extremely advantageous to lenders and disadvantageous to the borrowers."