Does your ‘date-the-rate’ advice constitute deceptive advertising?



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Recently, mortgage loan originators have been using the following phrases, along with others, to draw in reluctant buyers. It may be difficult to tell which of these are simply good advertising and which could be a potential pitfall in your marketing. 

Let’s take a look at several phrases and break them down one by one to see if there’s a clear path to clever and catchy phrases or a quip that could land you in hot water. 

  • “Buy a home now, and I can refinance you when we go into a recession and rates go down.”
  • “Buy a home now because when rates go down, there will be bidding wars, multiple offers and home prices will only go higher.”
  • “Buy a home now using an Adjustable-Rate Mortgage, and when rates go down, I can refinance you out of that ARM loan. 
  • “Date the rate, marry the house!”

Do these phrases meet the definition of “deceptive advertising?” Let’s look at the Model State Law from the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) when the SAFE Mortgage Licensing Act was implemented in 2009.

The CSBS/AARMR provided state regulators with language from the Model State Law if their state did not already have coverage of prohibited practices, including:

(5) Solicit, advertise, or enter into a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of soliciting, advertising, or contracting. 

(9) Make in any manner any false or deceptive statement or representation with regard to rates, points, or other financing terms or conditions for a residential mortgage loan, or engage in bait and switch advertising. 

States can add more prohibitions against deceptive advertising into their laws and rules, and many have. Here are some examples. 

No licensee may advertise, print, display, publish, distribute, or broadcast or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast, in any manner whatsoever, any statement or representation with regard to the rates, terms, or conditions for the lending of money that is false, misleading, or deceptive.

26-31-211 (7)  PROHIBITED PRACTICES OF MORTGAGE BROKERS AND MORTGAGE LENDERS
(7) Make any false promise likely to influence or persuade, or pursue a course of misrepresentations and false promises through mortgage loan originators or other agents or through advertising or otherwise;

Prohibited Practices (Rule 60)

It shall be a prohibited practice for any licensee, or person required to be licensed under the Act, connection with offering or providing services authorized under the Act to:

Make False or Misleading Statements. Make any representation or statement of fact, or omit to state a material fact, if the representation, statement or omission is false or misleading or has the tendency or capacity to be misleading, or if the licensee or person required to be licensed under the Act does not have sufficient information upon which a reasonable belief in the truth of the representation or statement could be based. Such claims or omissions include, but are not limited to, the availability of funds, terms, conditions, changes incident to the mortgage transaction, prepayment penalties, the possibility of refinancing, and the likelihood of successfully obtaining specific mortgage loan modification terms.

(6) advertise that a mortgage applicant will have unqualified access to credit without disclosing what material limitations on the availability of credit exist, such as the percentage of down payment required, that a higher rate or points could be required, or that restrictions as to the maximum principal amount of the mortgage loan offered could apply;

Safety and laws 

The SAFE Mortgage Licensing Act of 2008 established a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer.

Some economists say mortgage rates could go down, and we could go into recession. Why would we be celebrating a recession and possible job losses?

Home values could increase, but they could also decrease. If home prices decrease, people who purchased a home during the last few years might not be able to refinance (or sell) because they could owe more than what the house is worth. 

When communicating with consumers, a mortgage loan originator ought to explain good reasons for, and also good reasons against, buying or refinancing a home — and the good reasons for and against various loan programs. 

Mortgage loan originators should affirm their clients are comfortable with their mortgage interest rate and their monthly payment for the foreseeable future because nobody knows what’s going to happen with mortgage rates until it happens. 

What economists say from one day to another does not diminish the requirement that mortgage loan originators, to the greatest extent possible, act in the best interest of their customers.

‘Date the rate, marry the house:’ Final thoughts

This is a gross oversimplification and a revolting analogy to residential mortgage lending. 

An honest analogy: “Marry the house, marry the rate. You can get divorced from your rate in the future and marry a new rate, but it will cost you a lot of money in fees and interest if you select a new 30-year loan term because, once again, you will be 30 years away from owning your home free and clear.”

Mortgage loan originators, contact your compliance department for additional deceptive advertising prohibitions that are specific to the states in which you’re licensed. 

Beyond state laws, the CFPB is very concerned with violations of the Mortgage Acts and Practices Rule, Regulation N of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, based on consent orders over the past several years. 

Mortgage company managers should review their MLOs’ social media posts and videos and identify corrective action and compliance training as needed.

Jillayne Schlicke is the CEO of CE Forward, Inc., which offers consulting services in a variety of areas, including compliance, mortgage lending law, mortgage fraud, ethics and communications. 





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