Mortgage disclosure rule (EC: Oct. 2011)

The Federal Trade Commission (“FTC”) has recently issued its Mortgage Acts and Practices ‐ Advertising, or “MAP”, rule (“Rule”). The Rule imposes requirements on those that provide information about mortgage credit products to consumers by prohibiting misrepresentations during these communications and also imposing recordkeeping requirements. The Rule impacts real estate professionals that provide this information to consumers, such as giving a consumer a lender’s rate sheet.

The Rule took effect on Aug.19, 2011.

1. MAP Rule Basics

1.1 What is the MAP rule?
The Rule is intended to regulate unfair or deceptive practices in the advertising of mortgage products, and covers all entities involved in the process such as mortgage brokers, lenders, and home builders. The Rule will also cover real estate professionals when they are providing information about a mortgage credit product to a consumer.

1.2 What are the Rule’s requirements?
The Rule has two main requirements. First, the Rule prohibits misrepresentations in a commercial communication about any term of a mortgage credit product. Second, the Rule requires entities making a covered communication to retain records about the communication for two years.

1.3 What is a “commercial communication”?
A “commercial communication” is broadly defined within the Rule, covering both oral and written statements designed to “create an interest in purchasing goods or services”, which in this case would be a mortgage credit product. The Rule covers all forms of  communication, including verbal and electronic communications.

1.4 What is a “mortgage credit product”, as defined within the Rule?
A “mortgage credit product” is “any form of credit” that is offered to a consumer and secured by the consumer’s dwelling. The Rule’s coverage will include information about all mortgage terms and the Rule contains an extensive list of possible mortgage terms, including interest rates, products sold in conjunction with a mortgage such as credit insurance, amount of taxes, variability of interest rates, and prepayment penalties. The amount of credit extended must be primarily for household purposes, and so the Rule wouldn’t apply to a business loan secured by a consumer’s residence.

1.5 What is a misrepresentation under the Rule?
The FTC defines a misrepresentation as a representation, omission of information, or a practice that is designed to mislead consumers and the representation is material to the consumer. Basically, a misrepresentation is a statement that misleads a consumer to act in a way that is detrimental to the consumer.

1.6 What types of communications by a real estate professional will need to comply with the Rule?
The Rule will apply when a real estate professional provides information about a specific mortgage product to a consumer. An example would be providing a consumer with rate sheets containing the current interest rate from a lender or providing a consumer with applications or other information for a specific mortgage product. If the communication references a lender or other entity offering mortgage products (such as a mortgage broker) in conjunction with a mortgage product, then the Rule will apply. Note that purely informational communications are outside the scope of the Rule, as discussed in Section 3.

1.7 Who is responsible for enforcing the Rule?
Rulemaking authority for the Rule has transferred from the FTC to the Consumer Financial Protect Bureau (“CFPB”). Enforcement authority for the Rule rests with the CFPB, FTC, and state attorneys general.

1.8 What are the penalties for violations of the Rule?
The FTC/CFPB can seek civil penalties of $16,000/day per violation, which adjusts periodically to account for inflation. However, in addition to seeking civil penalties, the agencies can also seek equitable monetary relief for consumer redress or the disgorgement of ill‐gotten gains.

2. Disclaimer/Qualifying Statement

2.1 What is a disclaimer/qualifying statement?
In its comments, the FTC states a disclaimer provided with a covered statement “may correct a misleading impression, but only if the statement is sufficiently clear and prominent to convey the qualifying information effectively”. The disclaimer should make it clear to a consumer that the information is only being provided for informational purposes and the consumer should contact the lender directly for more information and how to apply for the mortgage product. Here is an example of a disclaimer:

Model Disclaimer Language for MAP Advertising

The disclaimer should be provided in text at least as large as the body text and should be placed in a location so that the disclaimer is readily apparent to the consumer receiving the mortgage information.

This communication is provided to you for informational purposes only and should not be relied upon by you. [Name of brokerage] is not a mortgage lender and so you should contact (entity providing mortgage product(s) identified) directly to learn more about its mortgage products and your eligibility for such products.

2.2 When should real estate professionals include a disclaimer in covered communications?
Real estate professionals should include a disclaimer on all communications covered by the Rule because a properly crafted disclaimer can protect against later misrepresentation claims. While the disclaimer won’t remove the need for the real estate professional to comply with the Rule, it will help to reduce any risk of a consumer claiming a misrepresentation.

2.3 What will qualify as a “clear and prominent” disclaimer?
While “clear and prominent” is evaluated on a case‐by‐case basis, the FTC notes in its comments that disclaimers in small type placed at the bottom of a document will not protect against misrepresentation claims. The disclaimer text should be separated from the other text in the covered statement, as language buried within the text may not be effective to protect against misrepresentation claims. The disclaimer should also be tailored to the type of information that you are providing to a client. If you are providing other services beyond transmitting basic mortgage information, you will need to tailor your disclaimer to cover those services.

3. Communications Outside of the Rule’s Requirements

3.1 What sort of statements by a real estate professional will not be covered by the Rule?
The FTC has stated in its comments that the Rule does not apply to purely informational
communications not designed to cause the purchase of a good or service because these are not commercial communications. So, providing a consumer general information about market rates for different types of mortgages products will likely not be subject to the Rule because these are not related to a specific mortgage product. However, providing a consumer with the daily rates from a specific lender would trigger compliance with the rule. Similarly, going through the prequalification process with a consumer in order to determine the range of properties that a consumer may be eligible to purchase won’t require compliance with the Rule; however, providing a consumer with the documentation needed to apply for a preapproval from a lender for a mortgage loan will be covered by the Rule.

3.2 When I meet with a client the first time, I usually will put them through the prequalification process to give them an idea of what kind of properties they can afford. Is this covered by the Rule?
So long as the prequalification is performed in a general way and is not connected to any specific mortgage product, it will be outside the scope of the Rule because it is purely informational. Of course, the real estate professional should still make it clear to consumers that they should contact a lender to obtain approval for a mortgage.

3.3 If I provide a consumer with a list of average market mortgage rates found in a local newspaper, is that covered by the Rule?
The Rule only covers communications about specific mortgage products, and so general information such as this will be outside the scope of the Rule so long as the rates are not tied to particular lender.

4. Recordkeeping

4.1 What is the Rule’s record keeping requirement?
A real estate professional is required to keep all covered commercial communications for 2 years from the date that the communication was made to the consumer. In order to comply with this section, the real estate professional should put all covered statements into writing and include the statements in each consumer’s file (paper or electronic) with the brokerage. This record retention system should become part of the brokerage’s overall record retention program.

4.2 What if I email the mortgage information to a consumer?
The Rule covers communications in all formats, including electronic communications.

5. Other scenarios

5.1 I am holding an open house this weekend. A mortgage lender has prepared rate sheets for the property, listing the estimated monthly costs for the property based on the listing price and the current market rates for various loan products. Am I subject to the Rule’s requirements if I make this information to open house visitors? What if a representative of the mortgage lender is present at the open house?
The open house rate sheets would be subject to the Rule. Whether the real estate professional is subject to the Rule would depend on whether he/she is the one making the commercial communication. If the real estate professional is distributing the rate sheet, then he/she is the one making the communication and so will need to comply with the Rule. However, if the mortgage lender has a representative at the open house who is providing the rate sheets to consumers, then that is who will be responsible for complying with the Rule. If the real estate professional is responsible for complying with the Rule’s recordkeeping requirements for an open house, it is suggested that the real estate professional retain the sign‐in sheet for the open house as well as one of the rate sheets distributed.

5.2 What if I provide the consumer estimates for closing costs?
The Rule only covers communications related to mortgage credit products. If this information is provided to a consumer simply for informational purposes and not connected to a specific mortgage product, the Rule will not apply.