Advertising is my avocation and therefore I am very attentive to almost all advertising. Too many words are heard on the air that in my opinion haven't any meaning and simply desensitize our minds. The words “we are number one”, “a name you can trust”, “simply the best”, “preferred by more (you fill in the blanks)” and “brewed to perfection” are just phrases that add nothing to the qualifications of the product or service, and are meant to convey an image that cannot be proven. What is "the best", "trust" or “perfection”? These are meaningless examples of a company's attempt to persuade you, and they are considered harmless. That isn't necessarily true in the mortgage business, and thus this article.
An example of what I am talking about that can be harmful is the following: "It's a no brainer, we can either save you money or we can't". Simple words that generally don't mean a thing because of the manipulation of the meaning of the word “save”. Save, to me, means that the transaction will result in my spending less dollars for the loan than I would have spent if I didn't take it at all. Lowering your payment on a 30-year fixed loan that you have paid on for 2.5 years might easily cost you more if you take another 30-year loan and start over, even if the payment is slightly lower.
I hear the head of a men's clothing company state that he "guarantees we will love the clothes" we buy from his company.
What does that mean? How do we measure it and what is the significance of his guarantee? Again, this is trivial, but it sets a pattern that gets us lulled into accepting hollow words, and worse, expecting something that won't be there.
When lenders advertise rates, they get away with all kinds of what most people would call "smoke and mirrors". Instead of advertising a rate that is under the market and stating it will cost one point (one percent of the loan, which is used to buy down the rate), they will smile and tell you the APR instead. They will not advertise a rate of 5.75% with a cost of one point, they will say 5.75% with an APR of 5.99%. Did you know that meant you were going to have to pay a point? Probably not. Not only is it not illegal, it is mandatory to state an APR when using an interest rate in an advertisement. But why not state the obvious: it will cost you a point. It is just part of the culture to use words that are meaningless.
How many times have you heard a car dealer advertise they are the largest dealer in the country? I am sure if one traveled through each of our states they would hear this claim 10 or 15 times. The answer most people would give is: Who cares, it is just a car company and it hasn't hurt anyone. Is this more conditioning for your mind? The other day I saw a real estate company with a sign that says no one sells more than they do. Really! Again, in basketball parlance, no harm, nor foul.
A national lending company, one who is a household name, is now stating they guarantee to have the lowest fixed rates in the country. They don't, and in fact they have some of the highest fixed rates I have seen. Does their guarantee stop you from shopping and seeing if it is true? I would hope so, but in many cases I doubt it.
So a few thousand people overpay for a home mortgage. Caveat Emptor.
Maybe I am just an idealist who believes that words should have meaning and not be used frivolously to the detriment of people. Maybe people should listen with full attention to the words they hear and question them. Maybe it is time to fight back and actually hold people responsible for what they say. Could our world work without subterfuge? Could business survive without slight of hand? I say a resounding yes.
Let me tell you that most people say they don't have the time to listen with both ears, study the subject, or understand the consequences – that they just try to get by without too much damage to themselves and their finances. In my industry, the mortgage business, that attitude can be very hazardous to your wealth, especially if you don't ask questions prior to accepting the loan. I really believe we are allowing ourselves to believe words, not actions, and we are the ones who pay the consequences, not the ones who give the message.
All of this can lead to another problem: A customer develops an unrealistic expectation based on years of hearing information that was meant to mislead, and ridicules a company who is actually trying to lead you on a straight and narrow path. When a lender advertises a rate, unless they specify, they are advertising conforming rates, which currently have a maximum loan amount of $417,000 and are owner occupied properties. Loans that are smaller than $175,000 usually have higher rates, as do loans over the conforming limit. Investment properties, and in some cases second homes, also have higher rates. Borrowers who don't fit the exact mold (and there are many other requirements for each loan) can easily feel they have been taken advantage of when receiving a different rate quote. Is it lack of understanding or too many meaningless advertisements that is the problem?
The confusion is not limited to the mortgage industry. I knew a business manager who informed a client that incorporation would save the client a lot of taxes. The client followed the advice and incorporated. When the business manager, a CPA, told the client at the end of the year to zero out the corporation and take a salary and pay tax on the salary, the client objected saying they were told that incorporation meant they didn't have to pay taxes. It took very little time for the client to leave the services of the business manager. Why? Probably a combination of a lot of things, including all the verbal waste on the air waves that helps portray nonexistent scenarios.
I really feel you can't change the world, so you just have to try to change yourself. At least in that way, the world will start to change one person at a time. Whatever you do, don't become complacent. Listen and react. Even if you only point out the incongruities to one person, it's a start.