Wednesday, September 22, 2010

Federal Trade Commission to Ban "Deceptive" Mortgage Ads: What Exactly Does This Really Mean?

The Federal Trade Commission is seeking public comment about its new plan to ban "deceptive" advertising in mortgage lending.  The program expands civil penalties and allows for additional state enforcement of its new rules beyond the current legal framework which the FTC in its own release does not claim is inadequate.


BE WARNED.


If you are in the real estate business in virtually any capacity you can be easily sucked into these new penalties.


From the FTC's own press release on the subject:


The proposed rule would apply to real estate, brokers, and servicers; real estate agents and brokers; advertising agencies; home builders; lead generators; rate aggregators; and other entities under the FTC’s jurisdiction.


In other words, pretty much the entire real estate industry except banks and credit unions which are regulated elsewhere and not by the FTC.


The implications here are enormous.  Given the fact there is no concrete, white-line, objective test of "deceptive" under FTC or any other Federal legal standard, this new rule will be applied subjectively to the entire industry.


Case in point:  The subprime mortgage crisis.


Many borrowers who lost their home to foreclosure or are underwater on their loans now claim they were "deceived" into buying a home using an ARM or some other hybrid loan.


No, most knew precisely what they were doing and what their monthly payments would be in the future.  Claiming "deception" or "duress" are merely ways of attempting to void or alter the original mortgage contract.


This new FTC rule is dangerous for an industry still reeling from years of excess, mismanagement, and government abuse.  And you could easily be trapped by it.  For example, you are a real estate agent who closes a sale where the buyer applies for a loan they, in retrospect, determine to be "deceptive."


I urge all real estate professionals to contact the FTC during the comment period to make sure this new rule is either clarified or abandoned.