What is the Mortgage Acts and Practices Rules?
The Mortgage Acts and Practices Advertising Rule (MAPS rule) prohibits deceptive advertising of mortgage products to consumers in the U.S.. Under the watchful eye of the Federal Trade Commission, what compliance considerations should organizations advertising mortgages be aware of?
In brief:
- Also known as Regulation N, the MAPS rule requires lenders, brokers, and advertisers to clearly and accurately represent interest rates, fees, and loan terms in all marketing materials
- Transparency around mortgage terms empowers consumers to make informed decisions when considering mortgage options, as well as building safer and more secure financial markets
- The MAPS rule outlines records that must be retained, meaning correct record keeping practices are a key element of MAPS rule compliance
Understanding the MAPS Rule
Prior to the MAPS mortgage legislation, some mortgage ads misled consumers by luring them with unrealistically low rates or down payments. In the wake of the housing crisis, the FTC established the MAPS rule in 2010.
The MAPS rule’s purpose is to bring clarity and transparency to mortgage advertising, to safeguard consumers. By prohibiting misrepresentation of loan terms, the MAPS rule empowers consumers to make informed financial decisions and protects them from predatory lending practices.
Who does the MAPS rule apply to?
The reach of the MAPS rule extends beyond traditional mortgage lenders, casting a net over any entity involved in advertising mortgage products.
Consequently, the MAPS rule applies to:
- Lenders and brokers: Considered the primary target of the MAPS rule, the legislation ensures advertisements from lenders and brokers accurately reflect loan terms.
- Loan servicers: Institutions that service loans must also abide by the MAPS rule, preventing them from making misleading representations when advertising services related to existing mortgages.
- Third-party advertisers: Marketing agencies or companies promoting mortgages on behalf of lenders must also comply with MAPS.
By encompassing this broad range of players, the MAPS rule creates a more transparent landscape for mortgage advertising, protecting consumers from deceptive practices at any touchpoint.
Prohibited practices under MAPS
The MAPS rule hinges on the central principle of prohibiting any misrepresentation of mortgage terms. Here are some red flags to watch for:
Interest rates and APR
Advertising rates that are significantly lower than what consumers actually qualify for, or failing to disclose the annual percentage rate which reflects the true cost of the loan.
Fees and down payment requirements
Omitting or downplaying mandatory fees, or misrepresenting the minimum down payment needed to qualify for a loan.
Loan qualification and eligibility
Suggesting through imagery or otherwise that anyone can qualify for a mortgage, regardless of their financial situation.
Prepayment penalties
Failing to disclose any prepayment penalties associated with paying off the loan early.
Bait-and-switch tactics
Luring consumers with attractive introductory rates or terms, then pressuring them into a less favorable loan at the closing table.
By staying informed about these deceptive practices and ensuring clear and accurate communication, broker-lenders and advertisers can uphold the core principle of MAPS and safeguard consumers throughout the mortgage application process.
Beyond deception: Additional compliance considerations for MAPS
The MAPS rule imposes certain recordkeeping requirements, and failing to retain the correct records constitutes a violation of the rule.
Lenders, brokers, and advertisers must retain specific records for 24 months after the last date an advertisement was made. Specifically, the following records must be retained:
- All versions of mortgage ads:
This includes copies of any advertisements (including materially different versions), sales scripts, training materials, and other marketing materials used to promote mortgage products. - Documentation of offered mortgages:
Documents describing or proving the details of all mortgage products offered during the ad campaign period must be retained. This includes product names, terms, and conditions. - Records of additional products:
If additional products or services like credit insurance are advertised alongside mortgages, documents detailing those offerings must be kept as well.
The most convenient way to store MAPS rule records is electronically. Global Relay’s Archive enriches, analyzes, and organizes unstructured communications data in one scalable, cloud data store. This allows broker-lenders to find, analyze, organize, and share data in seconds, which is invaluable for legal matters, audits, internal investigations, and more.
Practical steps for MAPS compliance
Safeguarding your organization from MAPS violations requires a proactive approach. Here are some key principles to consider:
- Clarity is king: Develop clear, concise advertising materials that accurately represent mortgage terms. Avoid ambiguous language or misleading visuals.
- Educate your team: Train staff on the nuances of the MAPS rule. Ensure they understand advertising best practices and can identify potential red flags.
- Review and refine: Establish a review process for all marketing content before it’s released. This helps catch any inconsistencies with MAPS regulations.
- Regular audits: Conduct regular internal audits of your advertising practices and recordkeeping. This proactive approach ensures you stay compliant and identifies areas for improvement.
- Stay up to date: Be sure to stay informed about rule changes and amendments, to allow your organization to adapt to evolving regulations.
By implementing these steps, broker-lenders can contribute to fostering a culture of transparency and minimize the risk of encountering MAPS-related compliance breaches.
Consequences of non-compliance with the MAPS Rule
Breaching the MAPS rule can be costly. The FTC wields enforcement power, potentially resulting in hefty fines and civil penalties. Beyond financial repercussions, a tarnished reputation and loss of consumer trust can significantly impact your organization.
In 2014, the FTC charged that Heritage Homes, a Pennsylvania-based builder, ran ads that violated Section 5 of the MAPS rule, by failing to disclose full mortgage terms to consumers. The settlement imposed a $650,000 civil penalty, suspended based on the defendants’ ability to pay.
Summary
The MAPS rule plays a vital role in protecting consumers by ensuring transparency in mortgage advertising. Ensuring MAPS compliance safeguards your organization and fosters a transparent mortgage lending experience for consumers, helping to build robust and sustainable financial markets.