Marketing ARMs with artful deceptions

Watch out for the hook

Adjustable-rate mortgages (ARMs) have multiple features, which makes them complicated. Because complexity doesn't sell well, most loan officers try to avoid it by focusing on one feature that may attract the client's interest; this is the "hook." ARM hooks are almost always mortgage payments that are relatively "low," or "stable," or "interest-only." When more persistent borrowers ask questions about the implications of low, stable or interest-only payments, the response may be an "artful deception." The loan officer makes a correct statement about the ARM, from which the client is allowed to draw an erroneous conclusion without being corrected. The letter below illustrates one of the more common artful deceptions. "I am interested in an adjustable rate mortgage (ARM) because it has a really low payment, but it does allow negative amortization. When I asked the loan officer about this, he said that negative amortization was limited to only 10 percent of the loan amount." Negative ...