U. S. Department of Housing and Urban Development
                                    Washington, D.C. 20410-8000
 
                                                        September 29, 1995
 
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER                            TI-434
 
TO:     ALL TITLE I LENDING INSTITUTIONS
 
SUBJECT:        DECEIVE ADVERTISING BY LENDERS AND DEALERS
 
        The Department is concerned about the growing problem of lenders
(including loan correspondents) and dealers making false and misleading
statements about the Title I property improvement loan program in their
advertising.
 
        Of particular concern is advertising that uses the words "Federal
Housing Administration" or "Department of Housing and Urban Development," or
the letters "FHA" or "HUD," to convey the impression that the material came
from FHA or HUD, or that the lender or dealer has a special relationship with
the Federal government that does not exist. This use of Federal agency names
can violate Federal criminal law under 18 U.S.C. 709 and can have a major
impact on the integrity of the Title I program.
 
        The Department is also concerned about advertising which does not
prominently identify the name of the lender or dealer responsible for the
advertising. This practice is unacceptable, because it can deceive and
mislead potential Title I borrowers. All advertisements must emphasize the
name of the lender or dealer, not the Federal government.
 
        Frequent Misrepresentations in Advertising
 
        The following list provides examples of misrepresentations that have
appeared in Title I advertisements. This list is illustrative and should not
be considered all-inclusive.
 
        o  Stating that the advertisement is an official government notice, or
           implying this by using a heading such as "Public Notice" or
           "Important Property Owner Notification."
 
        o  Improperly using FHA's name or HUD's name or logo to imply that the
           advertisement is from or is endorsed by FHA or HUD.
 
        o  Stating or implying that Title I is a grant program or a government
           assistance program; for example, stating that the Congress or HUD
           has set-aside funds for homeowners, or that FHA or HUD wants to
           help individuals repair or remodel their homes.
 
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        o  Stating or implying that Title I is a special program or provides
           special benefits for a particular area or for a particular age
           group.
 
        o  Stating that funding for the program is limited in amount, or is
           only available for a limited time period.
 
        o  Stating or implying that the advertisement is a government survey.
 
        o  Stating that the borrowers are pre-approved or that their property
           is preapproved.
 
        o  Stating that Title I loans are government insured, since the
           insurance coverage is for the benefit of the lender and not the
           borrower.
 
        o  Implying that the dealer is approved by FHA or HUD; for example,
           stating that the dealer is "An FHA Lender Approved Contractor."
 
        o  Stating or implying that the loan funds can be used for debt
           consolidation.
 
        o  Stating that poor credit or no credit is acceptable.
 
        o  Stating that no equity is required or no appraisal is required,
           unless the advertisement makes clear the conditions under which
           equity is not required.
 
Possible Sanctions Against Lenders
 
        Deceptive advertising practices by lenders erode public confidence in
the Federal government and the Title I program, and unfairly impact on the
vast majority of program participants who comply with HUD requirements. The
Department will take prompt action when it finds advertising abuses by
lenders. In appropriate cases, HUD will terminate the lender's Title I
contract of insurance, and HUD's Mortgagee Review Board may impose additional
sanctions and civil money penalties. In addition, deceptive advertising
practices could result in a referral to the Department of Justice for
criminal prosecution.
 
Lender's Responsibility for Dealer Supervision
 
        Lenders making dealer loans are reminded of their responsibility for
supervising and monitoring dealers in accordance with Sect 201.27 of the Title
I regulations. As part of this oversight, lenders must review and approve
dealer advertisements prior to distribution. The lender must inform the
dealer of any false and misleading statements and recommend changes to
conform to HUD requirements.
 
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        If the lender becomes aware of a deceptive advertisement that has
already been distributed, the lender must require that the dealer stop using
the advertisement until it is corrected. If the dealer is unresponsive to the
lender's supervision of its advertising practices, the lender must take
action to terminate the dealer in accordance with ' 201.27(a)(5) of the
regulations.
 
     Deceptive advertising by dealers will result in the dealer's suspension
or debarment from participation in the Title I program and other Federal
programs, and could result in a referral to the Department of Justice for
criminal prosecution.
 
For Further Information
 
        If you have any questions about this letter, please write to Robert J.
Coyle, Director, Title I Insurance Division, 490 L'Enfant Plaza Fast, Suite
3214, Washington, D.C. 20024, or call the Division at 202-755-7400.
 
                         Sincerely,
 
                        Nicolas P. Retsinas
                        Assistant Secretary for Housing-
                              Federal Housing Commissioner