(IHT) - That catchy slogan, dreamed up by the Fallon Worldwide advertising agency, was pitched in 1999 to executives at Citicorp who were looking for a way to lure Americans to financial products like home equity loans. But some in the room did not like it. They worried that the phrase would encourage people to live exorbitantly, says Stephen Cone, a top Citi marketer at the time.
Still, "Live Richly" won out. The advertising campaign, which cost about $1 billion from 2001 to 2006, urged Americans to lighten up about money, and helped persuade hundreds of thousands of Citi customers to take out home equity loans - that is, to borrow against their homes. As one of the ads proclaimed: "There's got to be at least $25,000 hidden in your house. We can help you find it."
Not long ago, such loans, which used to be known as second mortgages, were considered the borrowing of last resort, to be avoided by all but people in dire financial straits. Today, these loans have become widely accepted in the United States, their image transformed by ubiquitous ad campaigns from banks.
Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from about $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. 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.
None of this would have been possible without a conscious effort by lenders, who have spent billions of dollars in advertising to change the language of home loans and, with it, Americans' attitudes toward debt.
"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."
Many experts say the ads encouraged Americans to go deeper into debt.
"It's very difficult for one advertiser to come to you and change your perspective," said Sendhil Mullainathan, an economist at Harvard who has studied persuasion in financial advertising. "But as it becomes socially acceptable for everyone to accumulate debt, everyone does."
A spokesman for Citigroup said the bank no longer runs the "Live Richly" campaign and no longer works with the advertising agency that created it.
Citi was far from alone with its simple but enticing ad slogans.
Ads for banks and their home equity loans often portrayed borrowing against the roof over your head as an act of empowerment and entitlement.
An ad in 2002 from Fleet, now a part of Bank of America, said: "The smartest place to borrow? Your place."
One in 2006 from PNC Bank pictured a wheelbarrow and the line, the "easiest way to haul money out of your house."
It might seem hard to believe, but not long ago, people borrowed money to buy a home with the expectation that they would eventually pay off the debt. A mortgage had a finish line. You mailed your check to the bank every month for 20 or 30 years, paying interest and principal, and bit by bit, at the end you owned your home free and clear.
Now the idea of paying off the mortgage and owning a home outright is disappearing. One reason is that many people make smaller down payments on homes than they once did, so it takes longer to pay off their debt.
But another reason is that banks now enable homeowners to keep borrowing. In fact, they encourage it. Little by little, millions of Americans surrendered equity in their homes in recent years as home prices seemed to rise inexorably from one peak to the next.
As a result, the United States has become a nation of half-home owners. For the first time since World War II, the portion of home value that Americans own has fallen to less than 50 percent. In the 1980s, that figure was 70 percent.
Bankers defend home equity loans by saying they merely give
customers what they want: easy credit to buy things they otherwise
might not be able to afford. Advertising executives say society's
attitudes about debt shaped the ads, not the other way around.
The phrase "home equity loan" has been around since the Depression,
when it appeared in classified ads. But the transformation of the
second mortgage into the home equity loan began in earnest in the 1970s
and early 1980s.
That was when federal laws allowed mainstream banks to offer second
mortgages as well as loans with interest-only, adjustable rates and
so-called piggyback features combining first and second mortgages.
Until then, such products were primarily marketed to lower-income
customers by savings-and-loan associations and financing companies,
like Beneficial and Household Finance.
Marketing executives knew that "second mortgage" had an unappealing
ring. So they seized the idea of "home equity," with its connotations
of ownership and fairness. The phrase was also used for lines of
credit, which are sometimes taken out by people who have already paid
off their first mortgage.
But in the early 1980s, Americans were not very familiar with the
concept of dipping into home equity. Charles Humm, the senior vice
president for marketing and sales at Merrill Lynch Credit, had to go on
the road, explaining the idea to potential customers.
He had to change the notion that only people in financial trouble
took out a second mortgage, he recalls. Merrill wanted to sell second
mortgages to consumers who did not need to borrow money urgently.
"The second mortgage category, then as probably now, suffered from a
pretty bad reputation," Humm said. "It generally tended to be a credit
facility of last resort, and it was done by people in dire straits.
That was not the audience we were after."
The campaign worked. The amount of home equity loans outstanding
grew from $1 billion in 1982 to $100 billion in 1988 - in part because
a portion of the loans were tax-deductible, as the ads often
pointed out.
A Bank of New York ad in 1986, for instance, told homeowners who
exploited those tax advantages they were "absolutely brilliant."
An ad from CIT Financial, now struggling, said, "You don't have to
sell your home to get $10,000, $30,000 or even more in cash. You don't
even have to walk out the door."
Citibank's home equity ads portrayed housing as a revolving account
similar to the plastic card in your wallet. One in the mid-'80s, for
example, bragged: "Now, when the value of your home goes up, you can
take credit for it." Citigroup also called the line an "Equity
Source Account."
Advertising historians look back at the '80s as the time when bank
marketing came into its own. Citigroup led the way by hiring away
advertising staff from packaged goods companies like General Mills and
General Foods, where catchy ads were more common.
"Banking started using consumer advertising techniques more like a
department store than like a bank," said Barbara Lippert, an
advertising critic for the magazine Adweek. "It was a real change
in direction."
Banks thought they were in safe territory. A Merrill Lynch
executive, Thomas 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."
Capasse worked in the bank's division that was repackaging mortgage
loans into bundles of loans to resell to investors, a practice that
enabled lenders to make even more loans.
But other executives at Merrill were worried about the explosion of home equity lending.
Humm, the marketing executive in Merrill's credit division, said he
was concerned about ads from other banks that suggested using home
equity loans for family vacations, new pools and shopping jaunts.
"We thought it was an inappropriate use," Humm said. "We thought it
would bring to the equity access category the same kind of reputation
over time that had come to the second mortgage category."
Marketing executives who pushed the easy money slogans of the 1980s and 1990s now say their good intentions went awry.
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