As the market for purchase money mortgages dries up with rising interest rates, many mortgage companies are turning to spam – unsolicited mass e-mails – to market their products. The cheap method has the added advantage of reaching audiences outside of traditional geographic marketing, but some traditional lenders and brokers have concerns about consumer safety.

Spammers gather e-mail addresses from newsgroups and Web pages, sending as many as 13 billion unsolicited e-mails a year. The volume of mortgage spam blanketing the Internet reflects the downturn in the industry.

It’s a cheap way to try to reach a very large audience, said Massachusetts Mortgage Association President Steve Sousa. It reflects that business is down and people are looking for loan volume. Some people out there are willing to try spam as much as anything else.

The practice raises a number of compliance issues for state regulators. The Massachusetts Division of Banks has issued at least six cease and desist orders in the last few months to companies it suspects are operating illegally or without a license in the state, said David Cotney, deputy commissioner for consumer compliance at the Massachusetts Division of Banks.

In some cases the companies responded by explaining that their activities do not require a license. Some of the companies have since applied for licenses.

The division has received opinion requests on specific issues relating to Internet mortgage companies. Regulators must also consider whether e-mail solicitations, Internet banners and Web sites are advertisements. State regulations require lenders and brokers to display their license number on advertisements.

Obviously there’s some new issues we have to work through, Cotney said.

Spammers may not know which state their messages are reaching, so mortgage companies may be sending unsolicited e-mails to consumers in states where they do not hold licenses. Although this practice is not illegal, mortgage industry observers warn consumers to check out a company before responding to an offer.

There’s a lot of good companies out there, but there’s more bad companies, said Maureen Elliot, chairwoman of the Massachusetts Mortgage Bankers Association and executive vice president at Ivy Mortgage in Woburn.

Courting Customers
A sampling of mortgage spam from three companies e-mailed to a Bay State e-mail account included two that did not identify a company name or headquarters or in what states the company is licensed to do business. One firm offers a three-day, two-night vacation to people who try the service. The company offers second mortgages of up to 125 percent of a home’s value, debt consolidation, and refinancing to people with good credit or the credit challenged with bankruptcies or foreclosures on their credit reports.

One company called itself a referral agency, but does not make the loans itself. A click on a URL enclosed in the e-mail leads to an unidentifiable Web site with a mortgage application.

It’s interesting that they don’t tell you who they are, Sousa said. One of the issues here is knowing who you’re doing business with.

California-based Internet Mortgage Finder was the only company of the three to identify itself and include a phone number in the e-mail solicitation. The company teased its e-mail recipients with the subject line Is your mortgage interest rate as low as 2.75 percent? The firm, not licensed in Massachusetts, advertised technology to help consumers find competitively priced mortgages.

Massachusetts regulations require companies that make more than four mortgage loans in the state within 12 months to be licensed as a mortgage broker or lender.

If they’re not licensed, they can’t accept an application or make a loan – no more than four in Massachusetts in a calendar year, Cotney said. We’ve received a number of applications from Internet mortgage lenders in the last six months to a year. I see the approvals coming across my desk, and a lot of them have dot-coms in them.

To make matters more complicated, some companies serve as mortgage brokers, while others gather information to pass onto brokers, in effect acting as telemarketers on the Internet.

Some companies hold themselves out as brokering loans, but what they’re doing is selling lists, Cotney said. It’s a fine line. Once they venture into accepting an application, prequalifying or accepting compensation, they’re coming closer to acting like a mortgage broker.

The Division of Banks consumer assistance unit has not seen an increase in consumer complaints because of Internet mortgage solicitations, Cotney said. Most complaints filed about mortgage companies involved telemarketers, he said.

Some Internet mortgage companies have drawn criticism for aggressively promoting referrals from real estate agents. Onepipeline.com, operated by the Real Estate Brokers Lending Service in Salt Lake City, pledges it can boost agents income by up to 50 percent profit per sale.

I do think the attorney general eventually is going to look into this stuff, Elliot said.

Although Internet mortgage lenders have multiplied, many consumers remain wary of transmitting their financial information online.

People are still very uncomfortable with it, Elliot said. The consensus is people still want to meet face to face.

Sousa has received calls from consumers complaining that their mortgage was not funded on closing day or they could not reach someone in customer service at an Internet mortgage lender.

Perhaps the greatest difficulty spam e-mail causes mortgage companies is by advertising below-market rates.

We see a fair number of people coming in saying, ‘I just found this rate on the Internet, can you match it or beat it?’ Sousa said. That’s creating some problems. Spam e-mail in some ways is no different than the telemarketing that’s been going on a number of years in the industry.