Mortgage Direct Mail – Understanding the Risks of Creating Mortgage Advertisements

Mortgage Direct Mail – Understanding the Risks of Creating Mortgage Advertisements




There can be a lot of risk in sending out mortgage advertisements in today’s market. If you are thinking about preparing a piece which offers certain loan products that your company offers, you need to have an understanding of the rules that apply to mortgage advertising. Although the rules vary by state, it is helpful to review what rules some states have issued concerning the marketing of mortgage loans.

Here’s an example of a restricting statute from Connecticut’s Non-depository First Mortgage Lenders and Brokers statute that closely regulates the advertisement of mortgage loans:

Sec. 36a-497: (Formerly Sec. 36-440l). Advertisements

No person licensed pursuant to section 36a-489 shall:

(1) Advertise or cause to be advertised in this state, any first mortgage loan in which such person intends to act only as a first mortgage broker unless the advertisement includes the following statement, clearly and conspicuously expressed: BROKER ONLY, NOT A LENDER; or

(2) In connection with an advertisement in this state, use

(A) a simulated check

(B) a comparison between the loan payments under the first mortgage loan offered and the loan payments under a hypothetical loan or extension of credit, unless the advertisement includes, with respect to both the hypothetical loan or extension of credit and the first mortgage loan being offered, the interest rate, the loan balance, the total amount of finance charges, the total number of payments and the monthly payment amount that would be required to pay off the noticeable loan balance shown

(C) representations such as “verified as eligible”, “eligible”, “preapproved”, “prequalified” or similar words or phrases, without also disclosing, in immediate closeness to and in similar size print, language which sets forth prerequisites to qualify for the first mortgage loan, including, but not limited to, income verification, credit check, and character appraisal or evaluation; or

(D) any words or signs in the advertisement or on the envelope containing the advertisement that give the turn up that the mailing was sent by a government agency.

As can be seen by a close reading of Connecticut’s advertisement law, this state places many limitations on what you can and cannot do when you advertise mortgage loans to Connecticut borrowers.

For example the Connecticut law contains the following rules:

1. When acting as a broker, your ad must state “BROKER ONLY, NOT A LENDER”

2. You can’t use a “simulated check” in your mailer piece sent to Connecticut borrowers.

3. If you are doing a comparison of loan payments between two loan scenarios, you must also state for both examples: 1) interest rate, loan amount, total finance charges, total number of payments (loan term), and the monthly payment required to pay off the complete loan amount.

4. If you tell the consumer that he or she is “Verified as Eligible”, “Eligible”, “Preapproved”, or “Prequalified” – then you must also (in same area of the mailer and similar font size) state what the required conditions are to qualify for the loan such as income verification, credit check, and character appraisal. observe that some states (Virginia for example) will not let you write “Preapproved” on your mailer unless you have already done a complete underwriting review of the recipient’s loan application.

5. You can’t make your ad look like it is coming from the government.

We chose to show you this Connecticut statute because the above rules, although not required by each state in the USA, are good rules of thumb. Please check each state’s law for more information before considering any mailer campaign into that state.

Another state recently enacted rules restricting advertising of licensed lenders and brokers in the state of Idaho:

(From Idaho Rules Pursuant to Idaho Residential Mortgage Practices Act)

12.01.10.040.: misleading Advertising (Rule 40)

01. Advertising. Advertising method making or permitting to be made any oral, written, graphic or pictorial statements, in any manner, during the solicitation of business. misleading advertising is defined to include the following practices by a licensee, or a person required to be licensed under the Act:

a. Making a representation or statement of fact in an advertisement if the representation or statement is false or misleading, or if the licensee does not have sufficient information upon which a reasonable belief in the truth of the representation or statement could be based.

b. Advertising without clearly and conspicuously disclosing the licensee’s business name.

c. Engaging in bait advertising or misrepresenting, directly or indirectly the terms, conditions or charges incident to the mortgage loan being advertised. Bait advertising, for these purposes, method an alluring, but insincere offer to obtain, position, or otherwise assist a borrower in obtaining a mortgage loan on terms which the licensee cannot, does not intend, or want to provide, or which the licensee knows cannot be reasonably provided. Its purpose is to switch borrowers from obtaining the advertised mortgage loan product to obtaining a different mortgage loan product, usually at a higher rate or on a basis more advantageous to the licensee.

d. Advertising an address at which the licensee conducts no mortgage brokering or lending activities or for which the licensee does not keep up a license.

e. Advertising in a manner that has the effect of misleading a person to believe that the advertisement or solicitation is from a person’s current mortgage holder, a government agency, or that an offer is a limited opportunity when such is not the case.

Idaho Rules Pursuant to Idaho Residential Mortgage Practices Act, § 12.01.10.040, et. seq.

These Idaho rules also mirror the general ideas that “misleading Advertising” will not be tolerated within their state.

Idaho regulates misleading advertising by prohibiting:

o False representation

o “blind” advertising (not including your company’s licensed name in the ad)

o Engaging in “Bait Advertising” – sometimes referred to as “Bait and Switch”

o Advertising using a false address or an address for a location that is not properly licensed by the state

o Advertising so that the ad looks like it comes from the government, from the consumer’s current lender/servicer, or that the loan scenario is a “limited opportunity”

We provide you with these two statutes to give you an idea of how the states attempt to control your advertising practices. observe that almost every state will have some sort of statute or rules regulating advertising. Nonetheless, you should acquire and review a copy of the advertising rules from each of the states in which your intend to perform direct marketing.




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