"Live Richly" on your second mortgage (those were the days…)

The NY Times last Friday had an article that revealed that some Citicorp marketing execs - in the long ago year of 1999 - were concerned about their catchy, “Live Richly” slogan. They feared that the slogan  - designed to get people who would only take out a second mortgage if their life depended on it to take out something harmlessly termed a home equity loan - would “encourage people to live exorbitantly.”

Of course, the slogan trumped those worries, and Citi over the first half of this decade spent $1B to persuade its customers to borrow against the equity in their homes to put in that dream kitchen, take that dream vacation, buy that dream boat.

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.

However, what has been a highly lucrative business for banks has become a disaster for many borrowers, who are falling behind on their payments at near record levels and could lose their homes.

Citi was not, of course, the only bank to urge Americans to assume more debt. The article cites ads by, among others, Fleet (“The smartest place to borrow? Your place.”);PNC (wheelbarrow pictured with the line “easiest way to haul money out of your house.”); and Wells Fargo (”Seize your someday.”).

“Calling it a ‘second mortgage,’ that’s like hocking your house,” said Pei-Yuan Chia, a former vice chairman at Citicorp who oversaw the bank’s consumer business in the 1980s and 1990s. “But call it ‘equity access,’ and it sounds more innocent.”

Of course, the bankers and ad execs are quick to point out that they’re just giving the customers what they want, and that “society’s attitudes about debt shaped the ads, not the other way around.”

Advertising historians - does that sound like a fun profession, or what - note that the rise up in home equity borrowing co-incides with a shift in financial services from somewhat staid advertising, to advertising that was more like that of consumer goods companies.

Banks thought they were in safe territory. A Merrill Lynch executive, Thomas E. Capasse, told The New York Times in 1988 that home equity loans were safe because bankers believed that consumers would spend the money on wise investments and not “pledge the house to buy a blouse.”

A blouse? How quaint! Disneyworld excursion, Jeep for junior, Kate Spade bags for everyone is more like it. (At least granite counter tops and hot tubs represent an investment in the house that would presumably add some resale value to it.)

Okay, okay. Neither advertisers nor bankers were holding a gun to anyone’s head to get them to borrow house money for something frivolous. Still, we might all be a lot better off today if those execs who had some qualms about “Live Richly” had prevailed.

 

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I had already written this post before I saw that the ever-wonderful Mary Schmidt had picked up on it and has her own take, which I couldn’t agree with more. bv

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