Deceptive advertising is Baaaaaaaaaaaaaaaaack

Oh boy….I’m biting my tongue and I haven’t even started this post.  I am going to try to be as civil and clinical as possible while describing the source of my distaste (biting tongue) for a radio commercial that I’ve been hearing lately that really grinds my gears.

My disclaimer: I am paraphrasing the message of the radio commercial and supporting it (the numbers) with information from the mortgage company’s website.  This is purely my opinion and speculation on my part as to the true nature and motivation of the advertising tactics being used by this mortgage company.  This commentary is not a personal attack on anyone involved in this particular company, I do however have strong opinions about the message that is being pushed onto the public in the advertising.

That being said, this gives me a great opportunity to highlight several advertising tactics that I am sorry to say…..are back.  This type of advertising was common place several years ago and apparently, what worked then, will work now….at least that’s what THEY think.

Let’s ease into this slowly with a couple of items that caught my ear right out of the gates….

This radio commercial starts with the resonating bellow of a cruise liner horn accompanied by the crafty line “Think you’ve missed the boat on low interest rates?”.  Right there, i get antsy…..”they’re back” I quietly say to myself.

Now, although this company boasts on it’s website that it is spending thousands of dollars a month in radio advertising throughout California, I was unable to find an actual recording of the commercial on their site so if i miss a word or two in my paraphrasing, i apologize in advance.

While looking for the recorded commercial, the first thing i’m met with are  multiple department of Real Estate advertising violations (no licensing information or APR disclaimers for payments advertised) as their “too good to be true” offer is splashed across the front page of their website, so it does not surprise me about any of my findings here.

Creating a sense of urgency tied to interest rates is kind of one of my pet peeves.  I’ve always had a problem using interest rates as a lure to attract business, you know this if you’ve been with me for a while.

When you try to create a sense of urgency that puts consumers in a defensive buying position you are potentially being robbed of your power to make informed decisions.  The goal for this tactic is to make you (the buyer) feel like you’re going to “miss out” on something if you don’t act now.

Now, i can’t say with 100% confidence what the exact phrasing is, but consistent with the urgency message is something along the lines of  “don’t miss the boat” to round off this advertising gem.

The commercial continues to state that interest rates are still in the low “4’s”.  When I go to the website, there is a heavy bias toward advertising short term ARM mortgages that currently have pretty low rates due the the FED lowering the overnight rates which translate into a low PRIME interest rate.  Prime is the “base” of an adjustable rate mortgage that then has a “margin” tacked on top of it.  As PRIME goes up, so does your interest rate. Sound familiar yet?

If you haven’t already, follow the link in the word PRIME to see a chart of the history of prime interest rates.  Anyone remember what happened to interest rates in the early 80’s and late 90’s?  Most say that the current housing crisis make those days pale in comparison.  I’m no economist but I’m pretty good at connect the dots.

Unfortunately though, to the untrained ear – it sounds like “interest rates” are in the low 4’s.  That’s like saying “cars” are affordable.  Any chance they could be any more vague?

There is a claim made both in the radio commercial and plastered on the front page of the website (this is a copy & paste from the site):

How about a payment under $1100 for a 300k loan or a payment of $1500 for a 400k loan.

I am not going to provide a link to the website because I am not naming names here.  I simply want to use this as an example to further make my point about the importance of not believing everything you see, read or hear.

There are no disclaimers or explanations about how to they do it, simply the following guidance to help you realize this payment nirvana (again, copy & paste from the site):

Let XXXXX Funding and Real Estate Services

show you how.

Here’s my biggest point of contention. There is no education being offered, no opportunity for you to get additional information or details about how this would apply to your situation.  No, this is just a carrot to get you to call one of their sales people.

So how exactly is this payment achieved?  Well, let’s do some math. I’m going to assume that you, as a new home buyer would like a 30 year fixed rate mortgage, is that safe to assume?  Of course since there is no additional information provided, you’re thinking….$1,100 payment on a $300,000 house?!  That’s doable.

If the above payments are based on a 30 year mortgage of $300,000 (forget about if it’s fixed or not), the interest rate on an $1,100 payment (not under) would be a 1.94% interest rate!  Holy bargain basement prices BATMAN!  This “payment” also does not include taxes or insurance which could add an additional several hundred dollars to your payment….but now we’re just splitting hairs.

The final part of this radio commercial that really gets me is the explanation of “Why” this company is willing to offer you this incredible deal – “Because we flat out like to save our customers money”.

Advertising is EXPENSIVE. Companies spend thousands to millions of dollars on advertising campaigns to get their message in front of you often enough to build familiarity to the point where you become comfortable enough to call, respond or take action in a way that will result in them realizing a return on that advertising investment.

The challenge that I have with “mortgage companies” advertising rates or fees is that it is so unbelievably vague that the only way you can get the “truth” is to call and enter into the process of doing business with them until your “loan approval” progresses to the point where you can make an educated decision.  Until this point, there is no way to tell you what you qualify for without all the facts.  The facts are, no decision can be made without a loan application, credit, income, assets, down payment….etc.

I am truly surprised that this type of advertising is back….but then again, i guess i’m really not.  It was bound to happen.  It worked before and I suppose it will work again on unknowing consumers that are drawn to the cries of “too good to be true” heralds.

Finally, I want to leave you with this.

• Understand advertising for what it is – it’s a way for the company to get their name in front of you.  It’s in no way a testament to that company’s higher authority in a particular industry.
• Rarely will you actually realize the vague “bargain” advertised – it’s usually just a carrot to get you to pick up the phone or walk into a store.  Once you’re in, they have home field advantage.
• Be slow to research and interview the professionals you choose to work with.
• Educate yourself about the home loan and home buying process before hiring a lender or real estate agent.  If you get all of your information from one agent or lender you have no point of reference to know whether or not they are giving you good advice or accurate information.
• Make informed decisions at every step of the home buying process…ESPECIALLY when choosing a lender and agent to work with.

I hope this was helpful – Happy house hunting

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