Washington State Department of Financial Institutions

News Release

Monday, December 17, 2007

Lyn Peters, Director of Communications
PH (360) 902-8731 lpeters@dfi.wa.gov

Deb Bortner, Director of Consumer Services
PH (360) 902-0511 dbortner@dfi.wa.gov

If you are interested in speaking with one of the complainants or the Mortgage Broker Commissioners Chair, please contact Lyn Peters or Deb Bortner.


"Home Of The 1% Mortgage" Gets Notice: Bait And Switch Advertising Prohibited In Washington

OLYMPIA – Linden Loans, LLC of Kirkland, a licensed mortgage broker, bills itself on television as the “Home of the 1% Mortgage.” In a Statement of Charges entered last Friday, the Department of Financial Institutions (DFI) alleged that Linden used bait and switch tactics in its advertising. A DFI investigation revealed that though Linden promised consumers residential mortgage loans at “1% interest, with no points and no fees,” not one borrower actually received those terms in 2006. DFI is investigating whether any borrowers in 2007 received the promised terms.

Deb Bortner, Director of the Department’s Division of Consumer Services, noted that in addition to bait and switch advertising, Linden allegedly violated the Mortgage Broker Practices Act by misrepresenting loan terms, omitting required disclosures, and engaging in an unfair and deceptive practice. “The 1% rate touted by Linden lasts only a matter of months, and requires borrowers to accept predatory loan terms that would greatly increase costs to borrowers,” Bortner said. “Consumers have to be careful. Low rate, low cost mortgage loans may be available, but they often result in borrowers paying more than they should,” she continued. “In this case, we allege that Linden’s offer was illusory—consumers who responded to the bait were switched to higher rate and higher cost mortgages. The borrowers who did get the 1% rate — only 44 of 333 borrowers — paid fees that in some cases grossly exceeded traditional broker fees.”

The residential mortgage loan advertised by Linden was a payment-option adjustable-rate mortgage (ARM) that allows borrowers to choose among several payment options. Depending on the payment option selected by the borrower, the loan may be a negatively amortizing loan, in that the payments do not cover the interest. Monthly payments can increase each year by up to 7.5% for five years, after which the interest rate is reset to amortize any unpaid interest. The cap on monthly payment increases does not apply to the reset, meaning that borrowers could be facing much higher monthly payments. Respondent Linden also imposes a three year prepayment penalty on borrowers who get the payment-option ARM.

The Statement of Charges names Linden Loans, LLC, doing business as Linden Home Loans, as well as its owners, Christopher Opdyke and Mark Sullivan. Mr. Opdyke is the Designated Broker, Compliance Officer, CEO, and a Loan Originator. Mr. Sullivan is the President and a Loan Originator.

The Statement of Charges gave notice the Department may issue an order requiring:

“Borrowers who may have been subject to Linden’s deceptive advertising should contact the Department,” Bortner said. “We intend to closely monitor mortgage advertising in 2008, and expect similar enforcement actions will be forthcoming,” she continued.

All three respondents have the right to request a hearing on the charges.

Audio and video versions of Linden’s radio and television advertisements are available on DFI’s Web site. Listen to audio (2006). Watch video (2007). Transcripts of the radio and television advertisements are available in the Statement of Charges (PDF)*.

About DFI
www.dfi.wa.gov ▪ 360.902-8700 ▪ 877.746-4334 ▪ In Espaņol 888.976.4422

The Washington State Department of Financial Institutions regulates a variety of financial service providers such as banks, credit unions, mortgage brokers, consumer loan companies, payday lenders, and securities brokers and dealers. The department has won numerous awards for its financial literacy and outreach programs developed to protect consumers from financial fraud. In addition to posting information about licensees and administrative actions, the DFI’s Web site features consumer tips on a variety of financial fraud-related topics.

About the Division of Consumer Services
www.dfi.wa.gov/cs ▪ 360.902-8703

The mission of the Division of Consumer Services is to protect consumers from illegal and fraudulent lending practices. The division accomplishes its mission through licensing, licensee examinations, investigations, and enforcing selected state and federal statutes and rules. Consumer Services regulates the business activities of consumer loan companies, mortgage brokers, money transmitters and currency exchangers, as well as check cashers and sellers, also known as "payday lenders." The Division is entirely self-supporting, with funding provided by licensing, auditing, and policing of regulated businesses and individuals. No money is received from the state General Fund or other public revenue source.


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