When she was transferred from Washington to Boston this past April, Phoebe Morse went looking for a house. But she says finding the right credit terms for paying for the house was almost as hard as finding the house itself.
''I didn't know that much about annual percentage rates,'' she says. ''But what I certainly did do was shop for credit.''
The lenders she was dealing with then may not have known it, but that shopping gave Ms. Morse, the Boston-area regional director of the Federal Trade Commission, firsthand experience in an area the FTC has begun to deal with on a nationwide basis: advertisements for home mortgage credit terms.
Many of those ads, the FTC charged this week, are misleading or deceptive. Some contain bold-type percentage rates that do not reflect the full cost to the home buyer; others use terms like ''as low as 5 percent down'' without saying the down payment might be higher; others fail to state that a special rate applies only to the first year.
In an effort to end these practices, the FTC recently completed the first phase of a project to monitor and correct mortgage advertisements in 16 market areas. Real estate brokers, builders, and mortgage companies with improper ads were contacted, mistakes were pointed out, and, in most cases, Ms. Morse said, the problems were corrected. In fact, in the 16 regions the rate of compliance with federal credit laws has risen from an average of 13 percent to more than 84 percent since the project began in January.
The project, as well as its expansion to a nationwide basis, was discussed this week in a series of press conferences in seven cities and at the FTC's Washington headquarters.
While the effort is aimed at correcting advertising problems through education and information, the FTC is prepared to take a harder line with repeat offenders by taking them to court if necessary, Ms. Morse said.
It is hoped that more informative ads will give consumers enough information to do their own credit shopping, she said. In her case, that shopping led to some interesting discoveries. For instance, one lender told her the minumum down payment was 5 percent. But the overall interest rate was half a percentage point higher, to cover credit life insurance. At another lender, a higher down payment was required but the interest rate was lower, and that included the life insurance.
In one way or another, the FTC says, the misleading ads violated the Truth in Lending Act, which sets forth three basic requirements for credit advertising:
* The ad must reflect the terms, including the number and size of payments, actually available to the customer.
* If an ad includes an interest rate, it must also include the annual percentage rate. Unlike the more informative annual percentage rate, a simple interest rate does not include other things that might make up the total cost of the loan, such as origination fees, application fees, and insurance premiums.
* If any one of the major terms of the loan - down payment, monthly payment, and number of payments or length of loan - are mentioned in the ad, all the others must also be included.
Part of the problem, says Linda Kelleher, director of consumer affairs at the National Association of Home Builders, is that the Truth in Lending Act is 14 years old, and most of the changes in mortgage financing, such as variable loans , balloon mortgages, and other ''creative'' financing, have become widespread in just the last three or four years.
''Our industry is confused,'' she said. ''And our members have had to put more of their effort into keeping their heads above water than to keeping up with regulations.'' The FTC and the association are working together to inform the group's 110,000 members about the program and what the commission expects to see in future credit ads.
The FTC has published two free booklets on this subject, one for consumers, the other for business. Both the ''Mortgage Money Guide'' and ''How to Advertise Consumer Credit'' can be obtained from local FTC offices or from the FTC's Division of Credit Practices, Sixth and Pennsylvania Avenue, NW, Washington, D.C. 20580.