FTC ruling: Providing mortgage information may trigger new duties (OR: Sept. 2011)

Do you or your agents give lender rate sheets to buyers or provide them with a loan application or other information about a specific mortgage product? If so, a new rule issued by the Federal Trade Commission (FTC) may apply to you.

This rule, which became effective Aug. 19, 2011, is referred to as the Mortgage Acts & Practices–Advertising, or “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. It will also cover real estate professionals in some instances. Below is an article by the National Association of REALTORS (NAR) legal counsel that explains when it may apply to you and what you need to do to comply:

Application of Rule to real estate professionals
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. All statements about the terms of a mortgage will be covered by the Rule, and will need to be retained for two years. In addition, the statements should have the disclaimer language discussed in this article in order to protect against later misrepresentation claims.

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.

Disclaimer or qualifying statement
In the preamble to the final Rule, the FTC notes that a disclaimer provided with a covered statement “may correct a misleading impression, but only if it is sufficiently clear and prominent to convey the qualifying information effectively.” Therefore, real estate professionals should always include a disclaimer when providing information to consumers about the terms of a mortgage credit product, as a properly crafted disclaimer can protect against later misrepresentation claims.

The disclaimer will need to be prominent, as 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.

Model disclaimer language for MAP advertising
The disclaimer below 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.

Note that the disclaimer should 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.

Recordkeeping requirements
If a real estate professional is subject to the Rule, he is required to keep all covered commercial communications for two 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.