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Advertising to Lose Your House

The biggest ally banks and lenders had in pushing lucrative home equity loans and lines of credit was advertising agencies, the New York Times says today. Ad executives found unusually creative ways to make piling on so much debt that you could lose your house seem desirable, and something to which you should be entitled. Working with banks, ad agencies changed the name "second mortgage," with its negative consequences due to the fact that such products had been used only by people in dire circumstances, to "home equity loans." The word equity made it seem like the loans were fair, something equal to what you, as the consumer, deserved. Citicorp went with the slogan "live richly" for its loans. This requires no explanation. The Money Store coined the polite phrase "less than perfect credit" to dress up the previous term for people who didn’t pay their bills on time, which would have been "deadbeat."

All the advertising did its job. Prior to the 1980s, second mortgages were a tiny slice of the market, and taking out debt against your house was seen as both dangerous and desperate. Home equity lending changed that. Mortgage burning parties were passe; debt was in. From The Times:

Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from $1 billion, and nearly a quarter of Americans with first mortgages have them. That explosive growth has been a boon for banks. Banks’ returns on fixed-rate home equity loans and lines of credit, which are the most popular, are 25 percent to 50 percent higher than returns on consumer loans over all, with much of that premium coming from relatively high fees.

But here’s the flipside:

The portion of people who have home equity lines more than 30 days past due stands 55 percent above its average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45 percent higher. Hundreds of thousands are delinquent, owing banks more than $10 billion on these loans, often on top of their first mortgages.

The Times notes that some bankers did worry that slogans like "live richly" and ads encouraging people to use their home equity for luxury vacations might be sending, um, the wrong message. But they were in the minority. Banks in the 1980s stole away ad executives who previously pitched breakfast cereals and other consumer goods and the advertising rolled on. Now it’s being fingered for its part in the mortgage crisis.

In case you might have forgotten some of the ads - it’s hard to do, since they were relentless - the story summarizes one of the most famous, from Ameriquest, a subprime lender now out of business:

Ameriquest ran an ad in 2004 during the Super Bowl, one of the biggest advertising events of the year, that has come to symbolize the excesses of subprime lending. The ad showed a woman on an airplane climbing over the man sitting next to her to reach the aisle. The plane’s lights go off during turbulence and the woman slips, landing on the man’s lap. Other passengers gasp because it looks as if they were in a sexual embrace. “Don’t Judge Too Quickly,” the ad said. “We Won’t.” Two and a half years later, Ameriquest went bankrupt.

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