Compliance Blog

Posted by Anthony Demangone

Sure, HOEPA was designed to place a ton of protections on "higher-priced" mortgage loans.  But the new regulations will create quite of few new consumer protections that affect many other loans.  The new regulations add a number of requirements to Regulation Z's closed-end advertising rules.

In the Fed's own words..." The three most significant aspects of the (rule) related to strengthening the clear and conspicuous standard for advertising disclosures, regulating the disclosure of rates and payments in advertisements to ensure that low promotional or ‘‘teaser’’ rates or payments are not given undue emphasis, and prohibiting certain acts or practices in advertisements."

The Federal Reserve overviewof the HOEPA changes does a great job of highlighting the new rules.  Rather than recreate the rule, here's what they had to say.

Under the new rules, advertisements for home-secured loans may include only the simple annual interest rate, or the rate at which interest will accrue, along with and not more conspicuously than the disclosed APR. In addition, if an advertisement for a dwelling-secured loan includes a simple annual interest rate, such as a teaser rate, and more than one rate may apply during the loan's term, the advertisement must include:

• each simple annual rate of interest that will apply;
• the time period for which the rate will apply; and
• the loan's APR.

If an advertisement for a dwelling-secured loan states any payment amount, the advertisement must include:

• the amount of each payment that will apply during the loan's term, including any balloon payment;
• the period of time each payment will apply; and
• the fact that the payments do not include taxes and insurance premiums if a first-lien loan.

The additional disclosures discussed above must be equally prominent and in close proximity to the advertised payment or rate that triggered the required disclosures.

Prohibited Advertising Practices. The final rule prohibits a number of advertising practices for dwelling-secured loans deemed to be unfair, deceptive, associated with abusive lending practices, or otherwise not in the borrower's interest. These prohibited practices are:

1. using the term “fixed” when advertising a variable- rate loan or a transaction with a planned payment increase without including information about the time period for which the rate or payment is fixed and stating “ARM,” if applicable;
2. comparing the advertised rate or payment to an actual or hypothetical rate or payment without disclosing the rates or payments that will apply during the entire loan's term, and that they do not include taxes and insurance, if applicable;
3. misrepresenting that a loan is government endorsed;
4. using the name of the borrower's current lender without including the actual advertiser's name and disclosing that the current lender is not associated with the advertisement;
5. making a misleading claim that debt will be eliminated or waived rather than replaced;
6. using the term “counselor” to refer to a for-profit mortgage broker or creditor; and
7. providing an advertisement in one language while providing required disclosures in another.

I find it amazing that the Fed felt the need to regulate away some of these practices. But just the other night, I saw an ad that did a number of these things.  The ad showed a clip of President Obama talking about the need for affordable mortgages.  Then the ad jumped into the marketing of the lender's mortgage product.  The false implication was more than clear.  And then the ad stated that depending on the value of the home, you could eliminate credit card debt.  Note: the ad was at 2:30 in the morning while I was feeding Briggs.  But still.