- The Washington Times - Wednesday, June 14, 2006

As much as I like to believe most mortgage professionals are honest, reliable,

knowledgeable and, indeed, professional, the stuff that comes out of the woodwork when business slows is amazing.

I recently shared an experience involving a telephone conversation I had had with a so-called mortgage consultant. I dialed a toll-free number from a radio advertisement touting a mortgage program with a rate of 1.25 percent. The ad contained this sentence: “If you’re paying more than 1.25 percent for your mortgage, you’re paying too much.”

Because I’m a mortgage professional, I immediately knew this company was trying to sell an “option ARM,” which carries an adjustable-rate mortgage but allows low fixed payments, often resulting in negative amortization because the interest charged each month is more than the payment.

During my phone conversation, I asked the fellow at least five times if the interest rate on the mortgage was indeed 1.25 percent. Each time, the fellow affirmed it, adding what a great deal it was. I finally had to tell the fellow that the 1.25 percent was merely a payment rate, not the interest rate, before he decided to come clean. Of course, he began stuttering when I told him I was a mortgage professional and newspaper columnist whose hobby is being an industry watchdog.

After that call, I decided to keep all the mortgage junk mail I received last week. Here are a couple of excerpts:

• “Imagine consolidating all of your debt @ 2.40% APR.”

There’s only one way to read this, folks. The letter is touting a mortgage program with an annual percentage rate of 2.40 percent. When I called to clarify, the call confirmed that the 2.40 percent was a payment rate, not the actual annual percentage rate. The APR was said to be a typo. Yeah, right.

• “You are part of a select group of homeowners to take part in an exclusive mortgage-rate reduction program”

Because the interest rate on my mortgage is sitting at 5.50 percent, which is well below current market rates, I decided to call the company that had sent me this letter. Sure enough, the woman to whom I spoke coughed up the fact that the letter is supposed to mean “payment-rate reduction,” not “mortgage-rate reduction.”

I received nine letters in one week, all soliciting mortgage programs with which, being a mortgage professional, I am very familiar. The problem is that each letter was misleading in some way. I believe strongly in free markets and open commerce and don’t endorse restrictive advertising policies. However, misleading and untruthful advertisements, whatever the medium, are against the law.

As I’ve said before, the so-called option ARMs, which allow a choice of making a low monthly payment, may be fine for some folks — but hungry mortgage companies that use misleading advertising tactics need to be stopped.

Ultimately, it’s up to the consumer to do his homework and fully understand a mortgage program before jumping on it. I wouldn’t bet on getting educated by calling the company that sends out solicitations. You know the saying, “If it seems too good to be true, it probably is.” Caveat emptor.

Henry Savage is president of PMC mortgage in Alexandria. Contact him by

e-mail (henrysavagepmcmortgage.com).

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