Nor A Borrower Be: Consumers Skeptical Of Mortgage Ads
Attitudes toward home-mortgage products were linked to the type of product being advertised. Thus, traditional fixed-rate mortgages had the most positive reception, with 71% reporting a favorable attitude. This dropped to 52% for home-equity loans, 27% for no downpayment and 25% for "reverse" mortgages--the bogeyman of the sub-prime lending market. Older consumers were generally more knowledgeable about the variety of mortgage products than younger respondents.
The Harris poll, which surveyed 2,383 adults online from May 8 through 14, has serious implications not only for the financial institutions hawking mortgages, but also for the advertisers and media planners who help them execute sales.
The subprime lending hangover is deepening as lenders endure a second year of bad publicity. After accounting for $640 billion of U.S. mortgages in 2006, the market will probably experience a 25% to 30% volume decline in 2007, according to Bose George, an analyst with Keefe, Bruyette & Woods.
But ad messages have not adapted to the changing environment--calling into question how in tune advertisers are with their target audience. Specifically, they are failing to convey the appropriate messages to skeptical consumers who are seeking more transparency and ease of comparison in mortgage rates.
A recent article by Patricia A. McCoy in the Harvard Journal on Legislation, titled "Rethinking Disclosure in a World of Risk-Based Pricing," found that "numerous subprime ads are tantamount to affirmative misrepresentations." Specifically, McCoy found two main areas of advertising deception under the terms of the Truth in Lending Act. First, "TILA allows sub-prime lenders to tout their best rates, without disclaimers and regardless of the fact that numerous sub-prime customers will not qualify for those rates." Second, TILA also "permits lenders to dangle alluring teaser rates before consumers without notifying them how high their interest rates might go following rate reset."
In effect, this means, she adds, that "sub-prime lenders can entice customers with rosy prices that are not available to weaker borrowers, hike the price after customers pay a hefty application fee, then raise the price again at closing."