A recent memo from the legal department of the California Association of Realtors® has brought to our attention some changes in rules for advertising mortgage loans.  “The Federal Reserve Board has adopted, under TILA [Truth in Lending Act] Section 129(l)(2), 15 U.S.C. 1639(l)(2), rules to prohibit the following seven deceptive or misleading practices in advertisements for closed-end mortgages.”

1.  Advertisements that state “fixed” rates or payments for loans whose rates or payments can vary without adequately disclosing that the interest rate or payment amounts are “fixed” only for a limited period of time, rather than for the full term of the loan.

   How many times have you heard “2.9% fixed rate!” (or some such rate) when the 2.9%  was “fixed” only for the first 60 days?

2.  Advertisements that compare an actual or hypothetical rate or payment obligation to the rates or payments that would apply if the consumer obtains the advertised product unless the advertisement states the rates or payments that will apply over the full term of the loan.

“Are you paying 5.5% or more?  Refinance now with our 3% rate!”  Of course that 3% only lasts for the first three months.

3.  Advertisements that characterize the products offered as “government loan programs,” “government-supported loans,” or otherwise endorsed or sponsored by a federal or state government entity even though the advertised products are not government supported or –sponsored loans.

You can’t call a Fannie Mae loan “government sponsored”.  (Even though the Treasury Department has pretty much written Fannie Mae a blank check…)

4. Advertisements, such as solicitation letters, that display the name of the consumer’s current mortgage lender, unless the advertisement also prominently discloses that the advertisement is from a mortgage lender not affiliated with the consumer’s current lender.

Anyone with a mortgage has received one of these letters, “Regarding your [name of bank] loan # ------:  You can now refinance, etc. etc.”  But the letter is from another lender.

5. Advertisements that make claims of debt elimination if the product advertised would merely replace one debt obligation with another.

Ah, yes: “Are you staggering under a mountain of credit card bills and mortgage loans?  Get rid of that debt!  Call ABC Financial.”  (And owe it all to them.)

6.  Advertisements that create a false impression that the mortgage broker or lender is a “counselor” for the consumer.

“Call today and speak to one of our counselors!”  (who will counsel you into a back-breaking loan)

7. Foreign-language advertisements in which certain information, such as a low introductory “teaser” rate, is provided in a foreign language, while required disclosures are provided only in English.

“sólo el tres por ciento!” (but it changes to seven percent in 90 days)

The new rules take effect 4/1/2010.  Some of us will miss those outrageous ads, but it will be a good thing to have them gone.



February 2010