ANNAPOLIS, Md. — Mortgage lenders who relied on deceptive advertising to attract sub-prime borrowers with weak credit histories were able to find them though a legal but increasingly controversial process of public-record sifting.
Companies called "aggregators" sift through public land records at county and city courthouses, and amass loan information for companies that are trying to find consumers who are in bankruptcy, those with home loans and those looking to refinance homes.
These aggregators are getting ready to pounce on adjustable-rate sub-prime loans issued in 2005 and 2006 whose rates will begin resetting to higher monthly charges late this year. Web sites such as www.SubprimeARMLeads.com offer to help lenders bombard affected homeowners with new loan offers.
"Our premium sub-prime database targets homeowners identified from public records with a first or second mortgage from a sub-prime lender or finance company," the company boasts on its Web site. For a fee of $499, it offers 2,500 leads about sub-prime borrowers who may have fallen into debt. "It lets you reach homeowners who have not already been bombarded with mortgage offers."
The Web site belongs to Data Warehouse, a direct-marketing company in Boca Raton, Fla. The company also offers bankruptcy and mortgage application leads, called mortgage triggers. Data Warehouse boasts on its Web site that it works "with more than half of the top 30 sub-prime lenders in the United States."
Information provided by data aggregators forms the base for deceptive ads. Armed with loan details, unscrupulous mortgage lenders target low-income homeowners with ads that look as if they were issued by the federal government offering benefits under the Community Reinvestment Act. Others use official-looking seals with eagles.
"Elderly people are more likely to be susceptible to something that has a government-like stamp on it," said Stephen Prozeralik, the director of enforcement for Maryland's Department of Labor, Licensing and Regulation.
He agreed to examine an ad that Community Mortgage of Silver Spring, Md., had mailed to a McClatchy Newspapers reporter. The ad said that a loan with national insurance and banking giant USAA was about to adjust, warning, "This will be HUNDREDS OF DOLLARS added to your payment!"
Public court records confirmed that the reporter's first and second mortgages were fixed-rate loans. The ad was a lie. "I don't want to cause anybody undue stress," said Dan Williamson, Community Mortgage's president. When McClatchy confronted him about the deceptive ad, he blamed the company that sold him the leads.
Existing law also allows lenders to contract with the main credit bureaus — Equifax, Experian and TransUnion — for information when a consumer has applied for a home loan. The consumer's application triggers a lead for all lenders who purchase the credit bureau's service, and a consumer who's seeking a loan from one company suddenly is flooded with offers from others.
"The reality of the trigger list is it is the epitome of corporate theft and greed. They are engaged in identity theft," said Jon Miller, a real estate agent in Bellevue, Wash., who's seen his customers tricked into ill-suited loans. "I educate my clients. I tell them, 'You have to ignore these offers for credit, because our experience is it is all bait and switch.' "
Federal law requires that lenders must, in exchange for access to consumers' loan information, follow through with firm offers of credit. Lenders, however, often use the information for simple solicitation of business without defining amounts and rates.
That's led to a flurry of class-action lawsuits. Chicago lawyer Dan Edelman has brought 15 such lawsuits against mortgage lenders. He chuckles when he's asked whether mortgage lending has become the business equivalent of the Wild West.
"That's an understatement," he said.