Magazine article American Banker

Mich. Banker: False Ads Signaled Mortgage Crisis

Magazine article American Banker

Mich. Banker: False Ads Signaled Mortgage Crisis

Article excerpt

As pundits blame everything and everyone - from Wall Street to the rating agencies to Alan Greenspan - for contributing to the mortgage crisis, Stephen Lange Ranzini says a simpler root cause has been overlooked: false advertising.

In an interview Tuesday, Mr. Ranzini, the president of the $86.8 million-asset University Bank in Ann Arbor, Mich., said ads promising bogus rates, published in places such as the weekly listings of mortgage rates in a local newspaper, are endemic to the industry - even among the "big firms" and "brand name identities."

The problem burgeoned in recent years with the advent of nontraditional loan products, he said. He recalled an ad for a 30-year loan with a 4% rate; it turned out that the rate was fixed for two years, then jumped to 7%. The ad "sounded fabulous," Mr. Ranzini said, but "it was completely false."

Of course, most lenders stopped offering hybrid adjustable-rate mortgages in recent months, as the secondary market dried up. Still, Mr Ranzini said, "I don't really see a big change" in the truthfulness of mortgage ads. "I just see that it's bad."

He does not advocate legislation to address the problem. Regulators are already overwhelmed with more pressing issues like mortgage fraud, he said, and "I can't say I'm a big fan of big regulations either." Instead, publishers, ad executives, and lenders could self-regulate by forming boards that would set standards and reprimand violators - much as the municipal bond rulemaking bodies do, he said. …

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