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Why Mortgage “Checks” Are Not In The Mail

The checks are no longer in the mail and this is one time you really can blame the government.

Until recently the daily mail would often include one or more “checks” to buy or refinance real estate. Such checks looked real with lots of “official” numbers and “genuine” markings. Most importantly, they included your name and a very big number, say $189,000.

But before you ever got to the check, the good part was the envelope. It sure looked authentic, somewhat like those brownish envelopes the IRS uses to send tax refunds, with a little window showing your name on something that clearly seemed check-like.

The checks with the big numbers were designed so that you would act now. Why not get a real check? Just call today….

Real Costs

Of course, the letter did not seem to say too much about such matters as mortgage rates, points, closing costs, prepayment penalties or a host of other issues. And despite claims in very big letters, there was always the requirement in micro-type that all offers were subject to approval.

The letters were nothing but ads and the end-result of the fine print was that recipients were assured nothing. If you qualified you could get a loan, whether the cost reflected current mortgage rates was unknown and perhaps unlikely.


But we no longer get such checks in the mail and here’s why:

First, the government ruled earlier this year that lenders could no longer use official logos, names or acronyms to create the sense that their products were government endorsed or approved. Among other things, this meant that ads with the FHA logo were out.

Second, the Federal Trade Commission came out with its Mortgage Acts and Practices rule in late summer. Under MAP an act or practice is deceptive if:

  1. There’s a representation, omission of information, or practice that’s likely to mislead consumers acting reasonably under the circumstances; and
  2. That the representation, omission, or practice is material to consumers.

One of the important points about the MAP rule is that it applies to “the source of an advertisement or other commercial communication.” This is significant because borrowers used to receive mail which looked like it was from their current lender but was actually from a competitor.

In fact, when our current lender contacted us about a year ago to refinance our existing loan to a lower rate and to pay all closing costs we were so dubious we called the lender, a major bank, and spoke with the head of the lending department to confirm the offer.

Why would a lender make such an offer? With good credit and a solid payment history we could refinance elsewhere and the lender would lose a good borrower. By making an attractive offer to refinance the lender created a new mortgage which could be re-sold — at a profit — on the secondary market. Everyone won, which is how it should be.

The big question raised by the HUD and FTC rules is very simple: What took so long? The practices prohibited under their new rules have been going on for years and devalued legitimate ads by legitimate lenders. And those borrowers who fell for gimmicky promotions and bogus “checks” likely paid far more than they should had they looked at the sensible options available in the marketplace.

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