Advertising and the Home Equity Fiasco

In the 1980s, financial companies set out to change the perception of second mortgages among the American public. Unfortunately, no one predicted just how expensive that endeavor would ultimately be.  

The greatest ad campaigns of all time are those that prompt a change in thinking. Creative teams around the world dream of producing ads that convince vegetarians to eat meat, or invalids to buy home gyms. Who would have guessed that an advertising achievement on this scale would come from the ultra conservative personal finance industry?

Conspiracy theory

Over the last 20 years, Citicorp, Fleet, PNC Bank, Merrill Lynch, and other financial service companies set out to transform the scorned "second mortgage" into something more honorable. It was to be the most extreme of extreme makeovers, one that would dress up the wolf of materialism in the sheep's clothing of the American dream.

The plan was simple. Shake off the pawn shop image of the second mortgage by changing its name and associating it with one of the oldest advertising ploys in the book: the old "you deserve it" concept. Tell American homeowners that they deserve to enjoy all that life has to offer, they deserve to take fancy vacations, to drive Hummers, to cook with commercial-strength ovens, and to chop vegetables on granite countertops. Voila! Just like that, home equity debt became the new, must-have tool for wealth creation.   

Citicorp pulled this trick off famously with its "live richly" campaign. The company pumped $1 billion into pushing this message, which quietly urged Americans to spend, spend, and spend some more. Banco Popular followed suit with a campaign entitled "Make Dreams Happen," and then Wells Fargo warmly advised you to "Seize your someday."

Chicken or egg?

Some of the financial institutions that pushed the borrow-and-spend message claim they offered home equity debt at the request of their customers. Consumers wanted easier ways to borrow, the story goes, so the banks gave them credit cards and checkbooks linked to fat home equity lines of credit. One can only imagine what type of market research told banks that customers were eager to borrow against their home equity. Did they ask customers if they liked to buy things? If they wished they had more money to buy things? Surely no one asked them if they'd risk losing their home to buy a leather handbag or tickets to a baseball game. And, if customers had demanded the right to borrow against the future salaries of their children, would the banks have launched that service, too?

Critics aren't buying it. They say that home equity lenders encouraged excessive borrowing with slick ads that raised standard of living expectations and normalized unnecessary spending.

Consequences

Today, almost 25 percent of American homeowners have home equity loans. The total value of these outstanding home equity loans has jumped from $1 billion to $1 trillion in the span of about 20 years. That's a pretty strong indication that those ad campaigns worked like a charm.