The Federal Trade Commission is on the warpath against something that millions of American homeowners and buyers receive virtually every day: Misleading emails or faxes promoting home mortgages at artificially-low interest rates -- often three percent or less.

You probably receive such spam yourself. Typically its starts with "Thank you for your mortgage application, which we received yesterday. We are glad to confirm that your application is accepted and you can get as low as 2.7 percent fixed rates. We ask that you please take a moment to fill out our online application."

The application asks for personal and financial information such as the current market value of your house, your "credit rating," principal balance, interest rate, property address, and phone contact numbers. Typically the sponsor name is bogus, there is no contact information, and little or no evidence of data security. Worse yet, the spammers are not lenders at all, but either identity thieves or resellers of application information to lenders or brokers looking to pay for "fresh leads." And the 2.7 percent 30-year mortgages turn out to be figments of the imagination -- either short-term "teaser" adjustable loans that allow payments at artificially low rates for short periods, or negative amortization programs that increase rather than decrease the borrower's debt.

The FTC says many of these come-ons violate multiple statutory provisions, from the Truth in Lending Act to deceptive and unfair business practices. Alerted by homeowners and others, the FTC investigated and tracked down one major spammer known as 30 Minute Mortgage, Inc., of Boca Raton, Florida. The FTC charged the company with "dup(ing) consumers into revealing personal information by sending spam falsely advertising 3.95 percent 30-year mortgages, posing as a national mortgage lender, and misrepresenting security measures employed on their websites."

The company allegedly sent out millions of misleading mortgage spams, and induced thousands of homeowners to fill out applications to the firm, which then offered the completed applications to "third parties" who could not provide loans at anywhere near the advertised 3.95 percent 30-year fixed rate, if indeed they were lenders at all.

Though 30 Minute Mortgage admitted no wrongdoing in its settlement with the FTC, it agreed to cease its illegal marketing practices and essentially close its doors. The settlement enjoined the firm or its principals from future marketing of mortgages absent heavy bond postings, among other sanctions.

The FTC's move against 30 Minute Mortgage was made possible by homeowners forwarding copies of the company's promotions to the Commission's investigative database. Consumers who receive dubious offers promising low rates in exchange for personal application information can forward them to the FTC at uce@ftc.gov. Homeowners can also call in complaints at 1-877-FTC-HELP.

Peggy Tuohig, assistant FTC director for financial practices, says that "there is a huge volume of this" sort of mortgage-related spam on the Internet, as well as distributed by fax. Since thousands of homeowners fell for 30 Minute Mortgage's 3.95 percent ruse, the potential for identity theft and other harm "is disturbing," said Tuohig. "The watchword (for consumers) is caution."

When a mortgage promotion states a rate and term, but no "annual percentage rate" (APR), that's not only a tip-off of a scam, but also violates the Truth in Lending Act. Frequently, said Tuohig, the low advertised rates are "payment rates," not true interest rates, and often produce negative amortization.

Published: April 26, 2004

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.