Real estate professionals need to be aware of a new FTC rule — “Mortgage Acts and Practices – Advertising,” aka, MAP.
Among other things, it prohibits misrepresentations and imposes recordkeeping requirements on anyone who provides information about mortgage products to consumers.
This affects real estate professionals, because “providing information” can mean something as simple as giving a client a lender’s rate sheet.
The FTC originally proposed the MAP rule in 2009; the goal was to regulate unfair or deceptive practices in the advertising of mortgage products, whether by mortgage brokers, lenders, home builders, and anyone else involved in the process. And, despite NAR’s efforts to get an exemption for real estate professionals, that includes real estate professionals when they provide information about a mortgage product to a consumer.
The rule’s requirements
The MAP rule prohibits misrepresentations in a commercial communication about any term of a mortgage credit product. And “commercial communication” is broadly defined: It covers any oral and written statement designed to “create an interest in purchasing goods or services” — in this case a mortgage credit product. That means any form of credit that is offered to a consumer and secured by the consumer’s dwelling.
And what kind of statement is considered to be creating such an interest? The definition is broad — any information about mortgage terms is covered, and under “mortgage terms,” the FTC includes interest rates, amount of taxes, variability of interest rates, prepayment penalties, and products sold in conjunction with a mortgage such as credit insurance.
The rule applies to real estate professionals when they provide any information about the terms of a specific mortgage product to a consumer. For example, by giving a client a rate sheet for a particular lender, or providing an application for a specific mortgage product.
So what kinds of mortgage-related communications aren’t covered? General information about market rates or types of mortgage products will likely not be subject to the rule (unless it’s related to a specific lender’s product).
Similarly, explaining to a client how a mortgage prequalification works doesn’t fall under the rule, but providing that client with a particular lender’s documentation for preapproval is covered.
General information? Probably not covered. Information about a specific product or lender? Probably covered.
Disclaimers and recordkeeping
So a Realtor® gives a client information that falls under the rule. What does that mean? What does she have to do to be in compliance?
For starters, provide a disclaimer on whatever documents you give out or written statements you make; a properly crafted one can protect against later misrepresentation claims.
NAR’s sample disclaimer is simple and clear:
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 [name of lender] directly to learn more about its mortgage products and your eligibility for such products.
The disclaimer must be prominent and should be separated from the rest of the text in the document. (The FTC has said that disclaimers in small type at the bottom of a document will not protect against misrepresentation claims, and language buried within the text may also not offer protection.
(Note that you should tailor NAR’s sample disclaimer to the type of information you’re providing to a client. For example, if you’re providing services beyond basic mortgage information, you will need to edit your disclaimer to cover those services.)
Any “information” given to clients needs to be retained for two years.
Real estate professionals are required to keep all covered commercial communications for two years from the date that the communication was made to the consumer.
In a practical sense, that means putting all covered statements in writing, including those statements in each client’s file (paper or electronic), and filing them with the brokerage. This record retention system should become part of the brokerage’s overall record retention program.
VAR will keep members informed about any changes to the rule as well as any recommendations from NAR or the FTC.
Click here to read the rule’s text and accompanying commentary.
Click here for a model disclaimer.
And click here for the NAR document (legalese; login required)