Mortgage Brokers and Advertising
With so many financial transactions regulated by state or federal agencies, consumers might expect that how their mortgage broker advertises is also regulated. The problem is that those regulations are local, not federal, and vary widely from state to state. Many states even require pre-approval of mortgage broker advertisements.
Mortgage brokers in New York State are licensed and regulated by the State of New York Banking Department. According to Article 595-a, 2 of the New York State Banking Law:
(a) All advertisements by a mortgage broker, mortgage banker, or exempt organization shall contain the name and an office address of such entity, which in the case of licensees and registrants shall conform to a name and address on record with the banking department;
(b) No licensed mortgage broker or mortgage banker shall advertise its services in any media, whether print or electronic, without the words "registered mortgage broker" or "licensed mortgage banker" or similar words therein;
(c) No mortgage broker, mortgage banker or exempt organization shall advertise information concerning mortgage loans, including rates, margins, discounts, points, fees, commissions or other material information, including material limitations on such loans, unless such entity is able to make such mortgage loans available to a reasonable number of qualified applicants;
(d) All advertisements by mortgage brokers must include language indicating that such brokers may not make loans; and
(e) The term "advertisement" shall not include promotional material containing fifteen words or less which does not contain references to specific rates, points, discounts, fees, material loan factors, etc., such as imprinted pencils, pens or balloons.
The State of California has a much more in depth set of regulations when it comes to advertising. According to Article #16-2848, of the California Code of Regulations, the advertising criteria is as follows:
(a) In administering Sections 10232.1 and 10235 of the Code, the commissioner shall take such action as is appropriate to prevent or halt the publication of advertising that is false, misleading, or deceptive in itself or through the omission of information necessary to make a representation not misleading in the context in which it is used. To this end, the commissioner may disapprove or require verification of representations in advertising submitted pursuant to Section 10232.1 of the Code, or Section 2847 of these regulations.
In addition to the actual text, consideration shall be given to such factors as format, pictorial display, and emphasis in determining whether an advertisement is likely to create a false impression.
By way of illustration and not of limitation, advertising containing any of the following is considered to be false, misleading, or deceptive and will not ordinarily be approved for publication by the commissioner:
(1) The use of "guaranteed", "insured", "bonded", "sure", "safe", "sound" or other words or phrases of similar import to describe or characterize the security of lenders' or purchasers' funds, or the return to lenders or purchasers from the use of their funds, without an accompanying statement of fact supporting the use of the words or phrases implying high security. A representation to the effect that no losses or minimal losses have been sustained by lenders or purchasers doing business with the licensee shall include the period of time to which the representation applies.
(2) The use of terms in the comparative or superlative degree to describe any aspect of the business of the licensee, or any terms applicable to loans negotiated by the licensee, without such additional information as necessary to make the representation unambiguous in the context in which it is used.
(3) A statement that the licensee represents any lender enumerated in Section 10133.1(a) of the Code unless the licensee has a contractual arrangement to act as agent or representative for such lender.
(4) An implication contrary to the fact that the licensee will act in the capacity of a lender rather than as an agent or that a borrower will be able to obtain a loan without deduction from the principal amount for the payment of commissions, costs and expenses customarily attendant upon mortgage loan broker transactions.
(5) A representation of a specific installment in repayment of a loan without an equally prominent disclosure of the following information about the loan:
(A) Principal amount
(B) Simple annual interest rate
(C) Annual percentage rate
(D) Number, amount and period of payments scheduled to the date of maturity
(E) Balance due at maturity (balloon payment) if not fully amortized.
(6) A representation of a specific installment payment, interest rate, annual percentage rate or other provision concerning a loan unless it is clearly indicated whether the advertised terms are available for first loans, junior loans or for both first and junior loans.
(7) A representation or implication that loans are available on terms more favorable to the borrower than terms then generally available in the community through mortgage loan brokers or other sources for loan funds unless the advertised terms are in fact then available to a borrower without the application of undisclosed, special conditions or restrictions to qualify the borrower or the security for the loan.
(8) A representation or implication that loans are available on terms more favorable to the borrower than terms then generally available in the community through mortgage loan brokers or other sources for loan funds unless the broker has previously presented evidence satisfactory to the commissioner that the advertising is not illusory or deceptive in the light of all relevant factors of the broker's business practices including the amount of loan funds prospectively available to meet borrower demands in response to the advertising.
(9) A representation that loans are available at or to a maximum percentage of market value unless there is a disclosure as to how market value will be determined for purposes of a loan transaction.
(10) A representation or implication that the credit rating or other personal financial data of the prospective borrower will not be a factor in determining eligibility for a loan unless the broker in fact neither conducts nor causes to be conducted any investigation or inquiry into any aspect of any prospective borrower's credit rating or into his personal financial circumstances for the purpose of determining his qualifications for a loan.
(11) A representation or implication that a loan can or will be approved by telephone.
(12) A representation implying that the Department or any other governmental agency has endorsed or approved any aspect of the licensee's business activities. A statement that the offering referred to in the advertisement is being made under authority of a permit issued by the Department or by the Department of Corporations without more, will not be considered to be a representation implying endorsement or approval by a governmental entity.
(13) A representation or implication contrary to fact as to the number and location of offices maintained by the licensee for the conduct of his/her mortgage loan brokerage business
(14) Use of "investment plan", growth plan", or similar term to describe a program of a licensee carrying on activities described in Section 10131.1.
(15) The use of "savings", "savings plan" or terms of similar import indicating that the licensee is engaged in business activities requiring a particular license, permit or authority unless the licensee then has such a license, permit or authority.
(16) A representation of a simple annual interest rate without an equally prominent disclosure of the annual percentage rate.
The FTC does regulate certain advertising in the financial sector, as do other agencies. However, consumers, especially those living in cities and states bordering more than one state, need to be aware that what is permissible across the state line may not be appropriate for their own mortgage broker to say.
