On July 19, 2011, the Federal Trade Commission (“FTC”) issued its final rule on Mortgage Acts and Practices (the “MAPS Rule”). The MAPS Rule is a comprehensive new advertising and recordkeeping regulation with the potential to greatly affect the mortgage origination and servicing industry, as well as the greater real estate industry that provides complementary services to the mortgage industry.
The MAPS Rule is effective August 19, 2011.
Generally, the MAPS Rule prohibits any misrepresentation in any “commercial communication” regarding any term of a “mortgage credit product.” It imposes 2 year recordkeeping requirements on all materially different advertisements, as well as materials reflecting the existence and terms of those products advertised.
The MAPS Rule covers all companies that engage in advertising for mortgage credit products (i.e., “any form of credit that is secured by real property or a dwelling and that is offered or extended to a consumer primarily for personal, family, or household purposes.”) Importantly, the FTC’s jurisdiction does not extend to banks, savings and loan institutions, federal credit unions, or non-profit organizations. However, the MAPS Rule will cover mortgage lenders, mortgage brokers, mortgage servicers, real estate brokers, advertising agencies, home builders, lead generators, rate aggregators, and any other for-profit company that may market or advertise mortgage products.
The new Consumer Financial Protection Bureau will also have the ability to enforce the regulation. The MAPS Rule provides enforcement power to states’ Attorneys General as well.
The MAPS Rule prohibits any material misrepresentation, either express or implicit, in any commercial communication, regarding any term of any mortgage credit product. The MAPS Rule defines “commercial communication” very broadly, encompassing any written or verbal statement, illustration, or depiction designed to effect a sale or create interest in purchasing goods or services. Coverage includes such media as television, radio, internet, product labels, packages, package inserts, billboards, catalogues, and others. Promotional materials and webpages are specifically included. “Mortgage credit products” include loans secured by “a residential structure that contains one to four units, whether or not that structure is attached to real property.” The definition includes not only single-family homes, but also such structures as condominiums, cooperative units, mobile homes, and manufactured homes.
The FTC provides a non-exhaustive list of practices it deems to violate the MAPS Rule, including misrepresentations regarding:
- The amount of interest the consumer owes each month that is included in the payments, loan amount, or total amount due;
- Whether the difference between the interest owed and the interest paid is added to the total amount due from the consumer;
- The annual percentage rate, simple annual rate, periodic rate, or any other rate;
- The existence, nature, or amount of fees or costs to the consumer, including misrepresentations that no fees are charged;
- The existence, cost, payment terms, or other terms associated with any additional product or feature sold in conjunction with the mortgage credit product;
- The terms, amount, payments, or other requirements relating to taxes or insurance, including whether separate payment of taxes and insurance is required;
- The existence, nature, or amount of any prepayment penalty;
- The variability of interest rates, including using the term fixed for rates that are not fixed
- Comparisons between rates or payments that are available for less than the full life of the product and any actual or hypothetical rate or payment;
- The amortization of any product;
- The existence or amount of any minimum or required payments, including statements regarding what is required in a reverse mortgage;
- The circumstances in which a consumer may default, including for non-payment of taxes, insurance, or maintenance;
- The effectiveness of any product in assisting the consumer to pay off currently existing debts;
- The affiliation of any provider other person or programs, including misrepresentations about affiliation with government programs and use of government logos when a company is not affiliated with such programs;
- Whether statements are being made on behalf of the consumer’s current lender or servicer, instead of on behalf of a third-party company;
- The right of the consumer to reside in the dwelling and the duration of such right;
- The consumer’s ability to obtain any particular product, including representations that the consumer is pre-approved or guaranteed to obtain a certain product;
- The ability to refinance or modify any product; and
- The availability or substance of counseling services.
The MAPS Rule imposes a 24-month recordkeeping requirement on all commercial communications regarding any mortgage credit product, including:
- Copies of all materially different communications, such as sales scripts, training materials, and marketing materials;
- Copies of all documents describing or evidencing all products available to consumers, including the names and terms of each such product; and
- Copies of all documents describing or evidencing any additional products or services offered or provided to consumers in connection with the mortgage credit product.
These records may be kept in any legible manner, and may be kept in the same manner as all other materials the company maintains in the ordinary course of business. Thus, electronic records are fine under the rule, as are hard copies. Failure to keep these records is an independent violation of the MAPS Rule.
(Note: The following summary was prepared by NRMLA’s legal counsel, Weiner Brodsky Kider)