A mortgage ad that's depressingly deceptive and familiar lands in my mailbox
Is the mortgage industry planning to trot back out all of the irresponsible marketing practices that led to the housing crisis?
An ad I received from Quicken Loans sure makes me wonder if we're in for a shocking replay.
Quicken is a nationwide lender that's based in Detroit and owned by Dan Gilbert, the guy who also owns the NBA's Cleveland Cavaliers.
Normally I think of Quicken as a relatively sober member of the lending fraternity. I even had a loan from Quicken back in the day when it was known as Rock Financial.
So I was particularly dismayed when the letter claiming "You've been prequalified to refinance your mortgage and lower your current rate!" popped up in my mailbox.
Like many homeowners, I've already refinanced my current home and have a pretty good deal on a 30-year, fixed-rate loan.
How was Quicken going to offer me a substantially lower rate? By getting me to ditch my totally safe and predictable fixed-rate home loan for a seven-year adjustable-rate loan.
Persuading homeowners to switch from fixed- to adjustable-rate loans was one of the big marketing pushes of the housing bubble.
Untold numbers of borrowers lost homes they had once been able to afford when the introductory rates that had been promoted by loan officers and brokers expired and their payments went up.
Now, Quicken doesn't seem to be pitching one of the dangerous forms of adjustable-rate loans, such as option ARMs or interest-only loans, which wrought the most havoc.
But suggesting that now is a good time to switch to any ARM is just crazy.
Adjustable-rate loans make the most sense when interest rates are higher than average and there's no advantage to locking in a fixed rate.
But with interest rates at record lows, now's the time to be passing on ARMs and lining up a great fixed-rate loans you'll never have to worry about again.
In its letter, Quicken offers me a 7/1 ARM with an introductory interest rate of 2.99%.
We know of companies such as LenderFi that are offering 30-year, fixed-rate loans for as little as 3.5%.
I mean, really, which loan would you want?
But Quicken makes its ARM seem cheaper than it actually is by providing an inaccurate comparison with my current payments.
The letter says the payment on a 7/1 ARM at 2.99% is just $844.07 a month.
"Based on your current estimated payment of $1,757.00, that's a monthly difference of
912.93!" Quicken writes.
Well, yeah, I pay $1,757 a month when you include the escrow payment for property taxes and homeowners insurance.
The $844 payment Quicken is promoting for its ARM only covers principal and interest.
The actual difference in the payment between my current fixed-rate loan and the new adjustable-rate loan from Quicken is only about $213 a month.
That $912 savings the letter touts is nothing short of misleading.
If I took advantage of LenderFi's fixed-rate loan, the savings shrinks to all of $56 a month.
This brings back all sorts of bad memories of the outright fraudulent marketing the industry used to overstate the benefit of ARMs during the housing bubble.
Do we really want to go there again?