Welcome to Part Two of our August 2011 Mortgage Banking Newsletter!
FTC Issues Final Rule on Mortgage Advertising
The Federal Trade Commission published its final rule on mortgage advertising in the July 22, 2011 issue of the Federal Register. Under the rule, which was effective on August 19, 2011, it is a violation for any person to make a “material misrepresentation, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product.” The term “commercial communication” is broadly defined to include “any written or oral statement, illustration or depiction … that is designed to effect a sale or create interest in purchasing goods or services” no matter the medium utilized (e.g., web, telemarketing script, on-hold messaging, training materials, point-of-purchase displays, mailers, pamphlets, newspaper, magazine, radio, television, etc.).
The rule also enumerates many specific misrepresentations that are prohibited and requires persons or entities subject to the rule to keep, for a period of 24 months, (1) copies of all “materially different” commercial communications, as well as sales scripts, training materials and marketing materials, (2) documents describing or evidencing mortgage products available to consumers during the time period in which the person or entity made or disseminated each commercial communication regarding product availability, and (3) documents describing or evidencing all additional products (e.g., credit insurance) and services that are or may be offered during the time period in which the person or entity made or disseminated each commercial communication. Copies of the required documentation may be kept in any legible form and in the same format, manner or place as other business records are maintained in the ordinary course of business. Now would be a good time to review your compliance procedures regarding advertising and promotional materials within your organization.
Is Help On The Way For Mortgage Brokers?
Representative Gary Miller, R-Calif., introduced a bill on July 13, 2011 (H.R. 2509) that would amend the Truth In Lending Act (1) to allow a mortgage broker to pay a commission to a mortgage originator out of consumer-paid broker fees and (2) to allow a mortgage originator to forfeit /contribute up to 30 percent of its origination fee toward bona fide third-party fees to “avoid making a high cost mortgage to a consumer, to make technical corrections, or for any other reason that results in a lower cost to the consumer” if such forfeiture or contribution did not take place. It will be interesting to see if this gets any traction with other members of the House.
As of April 1, 2011, it became unlawful for a brokerage to pay a loan officer a commission in a consumer-paid transaction. Brokers have complained about this disadvantage as compared to their creditor counterparts, in addition to being concerned with their in ability to adjust terms to the consumer’s benefit when the consumer shops the broker’s GFE directly to a creditor. According to a July 15th article by Brian Collins of the National Mortgage News, Rep. Barney Frank, D-Mass, requested both changes to the final LO Comp Rule in a letter to the FRN on March 24 before enforcement on the final rule went into effect. On July 21, the CFPB takes over rulemaking authority for TILA and loan originator compensation and so the brokerage industry will be hoping that the agency considers changes to the rule sooner rather than later.
In an August 12th letter to the CFPB, the American Bankers Association stressed the financial and logistical challenges presented by the myriad of new regulations imposed by today’s regulatory environment. So great is the burden, according to the letter, that many bankers are evaluating the feasibility of many products and services, including mortgage banking.
Among other things, the letter urges the CFPB to clarify “the confusing provisions of the recently finalized TILA regulations governing compensation to mortgage loan originators.” One such area of confusion is over the prohibition of compensation that can be considered “proxies” for the terms and conditions of a loan, other than loan amount. For example, under the present definition, compensation in the form of bonuses or contributions to 401k plans could be illegal if they are linked to overall institution profitability. A copy of the letter may be found at the Dodd-Frank Tracker section of the ABA’s website.