Beware of envelopes that appear to contain checks

Nation's Housing

January 11, 1998|By Kenneth R. Harney

IS THAT A "live" check sitting in your mailbox, missing only your signature to turn it into instant $5,000 to $10,000 cash? Or is it a look-alike check with a much bigger payout number -- from $30,000 up -- that's not a check at all, but instead a come-on for a high interest-rate loan secured by your home?

If you've been confused recently by one or more such "checks" peeking through the cellophane windows of envelopes that resemble those used by federal agencies, join the crowd. "Live" checks and look-alike dummy checks are two of the fastest-growing techniques for marketing debt to homeowners, and they're upsetting not only consumers, but some members of Congress as well.

Live checks -- issued by large, multistate lenders including Beneficial Finance, Fleet Financial Group and Signet Banking Corp. -- are true checks. Sent primarily to homeowners who are pre-screened for desirable credit characteristics, they need only endorsed and deposited. Once deposited, however, they turn into fixed-term personal loans, repayable at interest rates ranging from 16 to 30 percent.

Live checks are controversial. Legislation pending in Congress would bar lenders from sending unsolicited checks to consumers.

Even the principal trade lobby representing lenders active in this arena, the American Financial Services Association, has urged members to print prominent disclosures on all live check mailings that "This is a solicitation for a loan. Read the enclosed disclosures before signing and cashing this check." The association has also urged members not to design envelopes to look like they contain negotiable checks.

That advice, however, doesn't apply to lenders hunting for bigger game -- those who market look-alike checks that can quickly turn into home mortgages of $50,000 or more at double-digit interest rates. Some envelopes carry federal government promotional messages such as "Buy U.S. Bonds." The "checks" themselves look official -- sometimes with an eagle or the Statue of Liberty imprinted next to the addressee's name.

Not surprisingly, they confuse some recipients. Maine's director of consumer credit regulation, Will Lund, says a member of the U.S. Army in his state recently received an eagle-embossed look-alike check from a Midwestern bank, and deposited it.

"It bounced, of course," says Lund, because it was a cleverly packaged home-equity come-on, not a live check. The serviceman "was really angry," Lund said, "because here he's a federal employee and he gets this familiar-looking envelope with a check with an eagle on it. He assumed it was from the federal government."

But confusion about look-alike home-equity checks isn't the only problem faced by consumers who receive them. Many of the offers turn out to be for much higher-cost credit than the "pre-approved" homeowners could obtain on their own.

Consider this mailing received recently by an area homeowner. Sent by Pacific Shore Funding of Lake Forest, Calif., it came in the customary brown federal agency-style envelope. Promotional language accompanying the "check" informed the homeowner that, based on public records relating to his property, "you [are] eligible to receive up to a $50,000 CASH ADVANCE." To receive the money, all the homeowner had to do was call a toll-free number for a "5-minute phone call" to "verify the facts with us." The promotion added that to obtain the money "No equity [is] required," self-employed individuals need "no income qualifier," salaried employees need submit "no tax returns" and "no W-2s."

When the homeowner called for more details, here's what he found: Though the typical rate on the home equity loan via the look-alike check ranged from 12 percent to 15 percent, to qualify for the "self-employed, no-income qualifier, no W-2s" program, he'd have to sign up for a 17.25 percent adjustable-rate loan with a lump-sum balloon payment due 12 months after closing.

A Washington homeowner received a similar mailing with a prominent "pre-authorized" $58,828 "check" from City Federal Funding of College Park. The mailing promised that "a check for up to $58,828 could be in the mail to you as early as next week," because "your home on [street address] may be worth more than you think. "

The mailing gave no rates or terms, but here's what a loan agent at the firm -- who identified herself only as "Silver" -- quoted by phone: For borrowers with "A" credit -- the best -- the $58,828 would cost 13 percent and "3 to 4 points" up front. (A point equals one percent of the loan amount.) For "B" credit applicants the basic rate is 15 percent, and for "C" grade homeowners, 16 percent. The fees, added Silver, "can go up to 10 points."

Pub Date: 1/11/98

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