Compliance in mortgage marketing is critical to ensuring your advertising efforts meet legal standards while effectively reaching potential clients. Navigating these regulations can be difficult for compliance professionals, especially with the myriad of platforms and content types involved.
It’s challenging to corral all your marketing channels, especially if sales staff and loan officers publish through Facebook or maintain their own websites. From social media posts to TV ads, understanding and adhering to prescriptive and non-prescriptive requirements is essential to avoid costly mistakes.
Today, we’ll explore ten key aspects of mortgage marketing compliance, offering practical tips to help you follow the law while maintaining the trust of your audience.
The Law and Regulations
There are several state and federal laws governing mortgage marketing material. To meaningfully manage these requirements, it’s easiest to divide them between “Prescriptive” and “Non-Prescriptive” requirements.
Prescriptive Requirements
Prescriptive requirements dictate exactly what information must be included or excluded in an advertisement and how it must be displayed. However, even seemingly straightforward rules can be tricky.
For example, quoting an interest rate requires quoting the corresponding APR in a font not smaller than the interest rate.
I had a client who ran a TV ad with the interest rate and APR. Both fonts looked the same to the naked eye, but a consumer paused the ad and measured the rate and APR on the screen. It turned out that the font size of the APR was slightly smaller than the interest rate displayed on the screen. Yikes.
Non-Prescriptive Requirements
Non-prescriptive requirements are marketing compliance requirements that do not prescribe what should be included or excluded from advertising but only instruct that the result cannot be unfair or deceptive.
The need for these requirements is understandable, but they invite subjectivity into the analysis and trigger risk only after an advertisement has been published. For example, while reviewing an advertisement, the compliance professional might feel it is neither unfair nor deceptive. Still, a Monday morning quarterback might tell you otherwise.
At that point, the horse is out of the barn, and they’re also telling you it’s ugly.
There’s a fine line between legitimate marketing fluff and a sack of lying statements. You don’t want to be called a lying sack of statements.
Now, let’s explore tips for both prescriptive and non-prescriptive requirements.
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Prescriptive Mortgage Marketing Compliance Tips
DO Disclose Regulation Z Trigger Terms
Providing complete information about downpayment, repayment terms, and APR ensures clarity and compliance with Regulation Z.
When mentioning Regulation Z "trigger" terms such as downpayment, payment amount, or finance charges, always disclose the downpayment amount, full repayment terms, and the annual percentage rate (APR), indicating if the rate can increase after consummation.
Regulation Z also has specific requirements for adjustable-rate mortgage loans, most of which focus on ensuring the loan product is not disclosed as a “fixed” rate loan when it is actually an ARM loan.
This can come up when, for example, the first five years of the loan are a fixed rate with a fixed payment, so the tendency may be to advertise this as a “fixed rate” loan. Don’t do that.
DO Disclose APR if You Disclose Interest Rate
Including the APR alongside quoted interest rates ensures transparency and compliance with Regulation Z.
Regulation Z requires that if a creditor includes a simple interest rate in the marketing material, they must also disclose the corresponding APR for that rate. Calculate the APR using an assumed loan amount and finance charges that best reflect the creditor’s average loan amount and typical finance charges for that loan program. This ensures accuracy and compliance.
DO Disclose Whatever States Require
Including the lender's NMLS number and licensing agency builds trust and ensures compliance with state regulations.
Always include the lender’s NMLS number in marketing materials, as well as the disclosure of the agency that licenses the lender.
Also, watch for other specific requirements and prohibitions on:
Using superlatives like “lowest” and “best” unless you can substantiate them
Disclosing the state agency governing your license
Using letters that look like valid checks
Non-Prescriptive Mortgage Marketing Compliance Tips
DON’T Use Confusing or Incomplete Statements
Clear, concise communication helps avoid misunderstandings and potential compliance issues.
Using confusing or incomplete phrasing can unintentionally create a “deceptive” situation.
This often occurs when trying to pack a lot of messages into a small space. For example, “Low Credit Score OK and Lots of Cash Out” may refer to two different products. Still, consumers might read it as one product–one that allows for a low credit score and enables them to get a lot of cash out.
If that is not the case, then you can see how this can be deemed deceptive, even if it was not meant to be.
DO Use Substantiated Statements
It’s okay to make bold statements that you can prove are true. Just be sure you retain the data and information necessary for future scrutiny and consideration.
It is not uncommon to make bold statements about the lender’s product or performance. For example, statements such as “we close loans in seven days” and “we make more VA loans than anyone” sound great, but are they true? If so, can you substantiate them?
You will need data or other proof that these statements are factual. It is also essential that these performance statements are not anomalies but typical performance indicators for your company.
This is similar to showing that your website has an A+ rating with the Better Business Bureau. If that is not the case, you should remove it from the website.
DON’T Create a False Sense of Urgency
Avoid misleading tactics that create unnecessary urgency to maintain trust and compliance.
Emblems or words that suggest the advertisement comes from a governmental agency or is otherwise meant to create a false sense of urgency are not permitted. Using an emblem similar to HUD’s, using the word “urgent,” or suggesting “time is of the essence” when neither is the case could be problematic.
Using the borrower’s current lender or servicer’s name in the advertisement (unless specifically allowed by state regulations) should be avoided. Some states prohibit this or otherwise place limitations on this, even if the information is obtained from public records.
In addition, using window envelopes, where the emblem or urgency is viewable, is problematic. This could be construed as “baiting” the consumer to open the letter because they believe it is from HUD, their current lender, or is otherwise “urgent,” which is behavior regulators frown upon.
DO Choose Appropriate Paper and Design
Ensure your design choices don’t unintentionally mimic official documents to avoid misleading consumers.
Using colored paper usually used by federal agencies (such as green paper like the IRS's) can be problematic. It may make your communication look like an official statement from the IRS. The solution here is to use something other than green paper.
Using “reference numbers” in marketing materials can be problematic. I had a client who regulators questioned about the “reference number” on a direct mail advertising piece. He demonstrated that by the loan officer entering that reference number in their system, they could identify the direct mail piece used and key content information related to that exact direct mail letter. So, in this instance, it was not inappropriate.
DON’T Misrepresent Company History or Experience
Accurate representation of your company's history avoids misleading consumers and builds trust.
If your company website claims that the leadership team has been together for nearly 20 years, but the company has only existed for five years, it can be misleading.
While it might be true that the team has been together for almost 20 years at another company, regulators may believe consumers will interpret this to mean the company has existed for nearly 20 years. Broaden the language to clarify that the leaders have led various companies before the advent of this new company.
DO Communicate Financial Benefits Clearly
Transparent communication of financial benefits helps avoid deceptive practices and builds consumer trust.
Claims such as "Lower your payments by getting a cash-out loan to pay off your credit cards" must be carefully worded. This could be deemed deceptive without a corresponding statement explaining that the consumer may pay more interest over time by paying off their credit cards with a 30-year loan.
DO Perform Regular Reviews and Compliance Checks
Regular reviews and compliance checks ensure your marketing materials meet all regulatory requirements and avoid potential issues.
Use checklists for both prescriptive and non-prescriptive requirements to ensure you don’t miss any details. Review the material as a consumer without financial services experience to identify potential issues.
Partner with Loan Risk Advisors for Marketing Compliance Success
Navigating the complexities of compliance in mortgage marketing can be daunting, and we've only scratched the surface here. There are countless situations and examples we encounter in our daily compliance work. In future blogs, we’ll cover:
Using filters to identify the target marketing audiences and other fair lending implications
“Pre-screening” and firm offers of credit
Record retention
Telephone call-related requirements and restrictions
Email requirements … and more!
While the challenges are significant, it's important to remember that you're not alone. At Loan Risk Advisors, we understand these struggles and specialize in guiding mortgage professionals through them.
Contact us today to learn how we can help streamline your marketing efforts and ensure your advertisements are both effective and compliant.
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