So you might be wondering what steps your company should take to prepare for a CFPB Examination that involves a review of your mortgage advertisements.
This is from the CFPB’s Supervision and Examination Manual and this section of the Mortgage Origination exam procedures shows you how the CFPB will test you on your mortgage advertising compliance with law procedures. The CFPB’s Examination Manual is available here: http://www.consumerfinance.gov/guidance/supervision/manual/.
Mortgage Acts and Practices, Regulation N (12 CFR 1014.3)
1. For non-depositories, determine whether advertisements and promotional materials for mortgage credit products contain material misrepresentations, expressly or by implication, of the following:
a. the interest rate charged for the product, including, but not limited to the amount of interest owed each month that is included in the consumer’s payments, loan amount, or total amount due, or whether the difference between the interest owed and the interest paid is added to the total amount due from the consumer (12 CFR 1014.3(a)(1)-(2));
b. the annual percentage rate, simple annual rate, periodic rate, or any other rate (12 CFR 1014.3(b));
c. the existence, nature, or amount of fees or other costs associated with the product, including, but not limited to misrepresentations that no fees are charged (12 CFR 1014.3(c));
d. the existence, cost, payment terms, or other terms associated with any additional product or feature that may be sold with the product, including, but not limited to credit insurance or credit disability insurance (12 CFR (1014.3(d));
e. the terms, amounts, payments, or other requirements related to taxes or insurance associated with the product, including, but not limited to whether separate payment of taxes or insurance are required or the extent to which tax or insurance payments are included in the loan payments, loan amount, or total amount due from the consumer (12 CFR 1014.3(e)(1)-(2));
f. the existence, nature, or amount of prepayment penalties (12 CFR 1014.3(f));
g. the variability of interest, payments, or other terms of the product, including but not limited to misrepresentations using the word “fixed” (12 CFR 1014.3(g));
h. comparisons between rates or payments available for a period less than the full length of the product and actual or hypothetical rates or payments (12 CFR 1014.3(h)(1)-(2));
i. product type, including whether the loan amortizes (12 CFR 1014.3(i));
j. amount of the obligation, or the existence, nature, or amount of cash or credit available to the consumer (12 CFR 1014.3(j));
k. existence, number, amount, or timing of any minimum or required payments, including misrepresentations about whether payments are required in a reverse mortgage or other mortgage credit product (12 CFR 1014.3(k));
l. potential for default, including misrepresentations concerning the circumstances when the consumer could default for nonpayment of taxes, insurance, or maintenance, or for failure to meet other obligations (12 CFR 1014.3(l));
m. product effectiveness with respect to debt reduction, elimination, restructuring, or waiver or forgiveness of the debt in whole or in part (12 CFR 1014.3(m));
n. the affiliation of a mortgage credit product or product provider to a governmental entity or other organization (12 CFR 1014.3(n)(1));
o. the relation of a mortgage credit product to a governmental benefit, or that the mortgage credit product advertised is endorsed, sponsored, or affiliated with any government or other program (12 CFR 1014.3(n)(2));
p. the source of any commercial communication, including but not limited to whether the commercial communication is made by or on behalf of the consumer’s current mortgage lender or servicer (12 CFR 1014.3(o));
q. the right of a consumer to reside in the dwelling subject to the mortgage credit product or the duration of that right, including but not limited to what conditions a consumer with a reverse mortgage can stay in the dwelling (12 CFR 1014.3(p));
r. a consumer’s credit qualifications for a particular product or program, including whether the consumer has been preapproved or guaranteed for any such product or term (12 CFR 1014.3(q));
s. the consumer’s likelihood to obtain a refinancing or modification, including misrepresentations concerning whether the consumer has been preapproved or guaranteed for refinancing or modification (12 CFR 1014.3(r)); t. the availability, nature, or substance of counseling services, including, but not limited to the qualifications of those offering the services or advice (12 CFR 1014.3(s)).
Other Risks to Consumers – General
1. Determine whether advertisements and promotional materials for mortgage loan products contain misleading representations that a lender or broker is acting in a fiduciary capacity or in the consumer’s best interest, if in fact, the lender or broker has no fiduciary duty.
2. Determine whether advertisements and promotional materials for mortgage loan products clearly disclose all material limitations or conditions on the terms or availability of products or services, such as: a. special interest rates for a limited time period (teaser rates); b. the expiration date for terms that apply only during an introductory period; c. interest rate resets that could cause significant increases in payments; d. material prerequisites for obtaining particular products, services, or benefits (e.g., discounts, refunds or rebates); e. non-amortizing or less-than-fully amortizing loan terms; f. balloon payments; or g. prepayment penalties. 3
3. Determine whether advertisements and promotional materials avoid using fine print, separate statements, or inconspicuous disclosures to correct potentially misleading headlines.
4. If additional products or services are sold or offered in connection with the loan, such as credit insurance products, home warranties, or annuities, determine whether advertisements and promotional materials provide timely, clear, and understandable information about the existence of costs, payment terms, penalties, or other terms and charges, the reasons for their imposition, and the salesperson’s compensation from cross-sales.
5. Determine the target audience for each type of advertisement and product. Assess whether the entity designs advertisements, promotional materials, disclosures and scripts to be comprehensible by the target audience. Please refer to the UDAAP examination procedures, Marketing and Disclosures, for more information.
Hope this helps with your review and preparation of your readiness for a CFPB examination that reviews your mortgage advertisements.