WASHINGTON (Reuters) - The Federal Trade Commission must take more aggressive action to stop deceptive advertising of subprime mortgages, which is still occurring even as growing numbers of borrowers face foreclosure, three Democratic lawmakers told the agency on Tuesday.
Lydia Parnes, director of the FTC’s bureau of consumer protection, acknowledged that the agency needs to do more.
“We are bringing cases that we’re investigating, but we obviously need to take it up a notch or two,” Parnes told a Senate commerce subcommittee hearing. “For the past several months at the commission, we have certainly been questioning ourselves as to could we have done more and what can we do going forward.”
Sen. Byron Dorgan, a Democrat from North Dakota, criticized the FTC for bringing just 22 actions against the mortgage industry during the past decade.
“I would hope this agency would take much, much more aggressive action,” Dorgan said.
Some mortgage lenders are still using false or deceptive advertisements offering low interest rates to lure consumers, especially through online offers, Dorgan said.
The FTC is now investigating more than a dozen mortgage companies for possible deceptive advertising, Parnes said. She did not identify the companies.
Bear Stearns BSC.N recently disclosed the FTC is investigating its EMC Mortgage Corp unit and seeking documents and information relating to business and servicing practices.
The agency will also soon follow up on more than 200 warning letters it sent out last year to mortgage brokers and lenders about home mortgage advertisements, Parnes said.
“The FTC identified the ads, including some in Spanish, in June 2007 during its nationwide review of ads featuring claims for very low interest rates or monthly payment amounts without adequate disclosure of other important loan terms,” she said.
Congress has been drafting legislation in recent months to help home owners facing foreclosures after they secured subprime loans whose rates later reset sharply higher. Lawmakers are also working to protect consumers from predatory mortgage lending practices.
Subprime mortgages, offered to borrowers with spotty credit histories, were often mass marketed in products that disguised onerous prepayment penalties and teased borrowers with low initial payments that later soared as the interest rates were adjusted upward.
Sen. Claire McCaskill, a Democrat from Missouri, said regulators aren’t taking responsibility for being “the cop on the beat” who should have protected consumers sooner.
“We have to prevent this going forward,” McCaskill said. “The same people who were vulnerable to these subprime loans are now vulnerable to the deals that come after.”
Currently, the FTC does not have the power to regulate advertisements or other business activities of banks, which are regulated by several other federal agencies. But it does have authority over non-bank mortgage companies and brokers.
Dorgan recently introduced legislation to boost annual funding for the FTC and give it more enforcement authority. The bill would also empower the FTC to regulate deceptive behavior by lenders and would let state attorneys general help enforce it.
Democratic Sen. Bill Nelson from Florida said the problem of deceptive mortgage advertisements was so obvious that regulators should have done more to intervene.
The FTC could be more effective in stopping deceptive mortgage ads if the agency could order civil penalties against non-bank entities within its jurisdiction, she said.
Richard Blumenthal, Connecticut’s attorney general, was also critical of the FTC’s policing of subprime advertisements and said states should have more authority to go after fraudulent behavior by companies.
“The federal pattern has been to claim sole authority and then fail or refuse to exercise it,” Blumenthal told the hearing. “States should be empowered as full partners to enforce consumer protection laws.”
Next month, FTC staff economists plan to hold a conference on strategies to ensure consumers receive clearer mortgage disclosures.
Reporting by Karey Wutkowski; Editing by Leslie Adler