An online operation in the business of finding potential borrowers for mortgage companies will pay a $225,000 civil penalty to settle Federal Trade Commission charges that it deceived people about mortgage terms.

The FTC charged that, a Houston-based lead generator that operates several Web sites advertising mortgages, advertised low interest-rate loans as fixed-rate mortgages when they actually were adjustable-rate mortgages that could become more expensive for borrowers over time.

The company also allegedly failed to include important disclosures such as the annual percentage rate, amount of downpayment and repayment terms that figure into the advertised payment amounts and interest rate. 

"Buying a home is one of the most important financial decisions a consumer can make," said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. "When companies deceive consumers about the true cost of the mortgages they offer, and consumers take on a mortgage they can’t afford, the harm can last a long time. The FTC’s message is clear: Mortgage advertising must be truthful."

According to the FTC’s complaint, ads appearing on the company’s website stated:

"Low FHA Fixed Rates 2.25%. Low Rates. Free Quotes. No Hidden Costs!" It also stated there is no need for credit checks or to even submit personal information such as Social Security numbers.  

Unlike fixed-rate mortgages, adjustable-rate mortgages carry an interest rate that fluctuates based on credit markets, so the cost to borrowers can increase and decrease over the course of the loan.

The complaint charges with violating the Federal Trade Commission Act and the Mortgage Acts and Practices Advertising Rule, or “MAP” Rule and Regulation N, by deceptively advertising variable interest rate mortgages as having fixed interest rates.

It also charges the company with violating the Truth in Lending Act and Regulation Z by advertising false credit terms; failing to disclose the annual percentage rate and whether it will increase after the loan is made; advertising variable-rate mortgages as fixed-rate mortgages; and stating a payment amount without making required disclosures. Under the Truth in Lending Act, when advertisers state a payment amount, they also are required to disclose the amount of the downpayment or its percentage of the payment amount; the terms of the repayment, including repayment obligations over the full term and any required balloon payment; and the annual percentage rate.

Under the terms of the settlement, along with paying the $225,000 civil penalty, is prohibited from:

    •    misrepresenting the terms and conditions of any financial product or service, and any term or condition of a mortgage credit product,
    •    assisting others to misrepresent any material fact about a mortgage credit product;
    •    disclosing, selling, or transferring consumer data; and
    •    violating the Federal Trade Commission Act; the MAP Rule and Regulation N; and the Truth in Lending Act and Regulation Z.

In 2009, Congress directed the FTC to establish a rule that would strengthen consumer protections by banning deceptive claims about mortgages. The rule became known as the MAP Rule, or Regulation N.

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