A Look at the FTC Mortgage Assistance Relief Services Rules

The Federal Trade Commission passed a final rule relating to Mortgage Assistance Relief Service effective December 10, 2010, except for Section 322.5 which is effective on January 31, 2011.  If you are a real estate professional that deals with short sales, you need to understand these rules.

In order to understand these rules you must first understand what is covered by the term "mortgage assistance relief services" (referred to as MARS) and who are considered "mortgage assistance relief services providers."  

MORTGAGE ASSISTANCE RELIEF SERVICE (MARS) DEFINED

16 C.F.R. 322.2 (i)

Any service, plan or program, offered or provided to be the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer with any of the following”:

• Saving the consumer’s dwelling for foreclosure of repossession;

• Negotiating, obtaining, or arranging a modification of any term of a dwelling loan;

• Obtaining any forbearance or modification in the timing of payments from any dwelling loan holder or servicer on any dwelling loan;

• Negotiating, obtaining, or arranging any extension of the period of time within which the consumer may cure his default, reinstate, redeem or exercise any right to reinstate or redeem a dwelling loan.

• Obtaining a waiver of an acceleration clause or balloon payments clause in a dwelling loan;

• Negotiating, obtaining or arraigning a short sale, deed-in-lieu or other disposition of a dwelling other than a sale to a third party who is not the dwelling loan holder.

MORTGAGE ASSISTANCE RELIEF SERVICE PROVIDER DEFINED

16 C.F.R. 322.2 (j)

Any person that provides, offers to provide, or arranges for others to provide, any mortgage assistance relief service.  The term does not include:

• The dwelling loan holder (or any agent or contractor for them);

• The servicer of a dwelling loan (or any agent or contractor for them)

Attorneys that comply with the certain requirements are except from the MARS rules.

PROHIBITED REPRESENTATIONS

16 C.F.R. 322.2 (h)

A mortgage assistance relief services provider cannot make the following representations (expressed or implied):

• Representing that consumer cannot or should not contact or communicate with his/her lender or servicer (16 C.F.R. 322.3(a)).

• Misrepresenting any material aspect of any mortgage assistance relief service (16 C.F.R. 322.3(b)) (for examples of misrepresentations click here);

• Making a representation about the benefits, performance, or efficacy of any mortgage assistance relief service unless (16 C.F.R. 322.3(c));

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  • At the time of such representation, the provider possesses and relies upon competent and reliable evidence that substantiates that the representation is true;

REQUIRED DISCLOSURES

16 C.F.R. 322.4

General Communication Disclosure

Disclosures required in all general commercial communications (16 C.F.R. 322.4(a)):

• “(Name of Company) is not associated with the government, and our service is not approved by the government or your lender.” (16 C.F.R. 322.4(a)(1))

• “Even if you accept this offer and use our service, your lender may not agree to change your loan”  (16 C.F.R. 322.4(a)(2))

• This applies if when the MARS provider has represented, expressly or by implication, that consumers will receive any service or result set forth in Section 322.2(i)(2) – (6).

• The disclosures required in this section must be made in a clear and prominent manner (16 C.F.R. 322.4(a)(3))

• In textual communications the disclosures must appear together and be preceded by the heading “IMPORTANT NOTICE”  (bold face and in a font 2 point type larger than the font size of the required disclosures (16 C.F.R. 322.4(a)(3)(i));

• In oral or audible communications disclosures must be preceded by the statement “Before using this service, consider the following information.”  (16 C.F.R. 322.4 (a)(3)(ii))

Consumer Specific Disclosure

Disclosures in All Consumer-Specific Commercial Communications (16 C.F.R. 322.4(b)):

• “You may stop doing business with us at any time.  You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer].  If you reject the offer, you will have to pay us.  If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services.” (16 C.F.R. 322.4(b)(1))

• “Name of company) is not associated with the government and our service is not approved by the government or your lender.”  (16 C.F.R. 322.4(b)(2))

• “Even if you accept this offer and use our service, your lender may not agree to change your loan”  (16 C.F.R. 322.4(b)(3))

• This applies if when the MARS provider has represented, expressly or by implication, that consumers will receive any service or result set forth in Section 322.2(i)(2) – (6).

• The disclosures required in this section must be made in a clear and prominent manner (16 C.F.R. 322.4(b)(4))

• In textual communications the disclosures must appear together and be preceded by the heading “IMPORTANT NOTICE”  (bold face and in a font 2 point type larger than the font size of the required disclosures;

• In oral or audible communications disclosures must be preceded by the statement “Before using this service, consider the following information.”

Disclosure for Both General and Specific Communications

Disclosures required in all general and consumer-specific commercial communications (16 C.F.R. 322.4(c)):

• “If you stop paying your mortgage, you could lose your home and damage your credit rating.”

• Required in cases where MARS provider has represented in connection with the advertising, marketing, promotion, offering for sale, sale or performance of any mortgage assistance relief service, that the consumer should temporarily or permanently, and in close proximity to any such representation. 

PROHIBITION ON COLLECTION OF ADVANCED PAYMENTS AND MORE DISCLOSURES

16 C.F.R. 322.5

No Advanced Payments

A MARS provider cannot:

• Request or receive payment of any fee or other consideration until the consumer has executed a written agreement between the consumer and the consumer’s dwelling loan holder or servicer reflecting the services provided by the MARS provider (16 C.F.R. 322.5(a)).

Disclosure When Presenting Short Sale Offer

Required disclosure at time above referenced offer is presented to the consumer (16 C.F.R. 322.5(b)):

• “This is an offer of mortgage assistance we obtained from your lender [or servicer].  You may accept or reject the offer.  If you reject the offer, you do not have to pay us.  If you accept the offer, you will have to pay us [same amount as disclosed earlier] for our services.”

• Disclosure must be made in a clear and prominent manner,

• On separate written page, and

• Preceded by the heading “IMPORTANT NOTICE:  Before buying this service, consider the following information.” (must be in bold face font that is 2 point type larger than font size of the disclosure,   

Required disclosure at time above referenced offer is presented to the consumer (16 C.F.R. 322.5(c)):

• A notice from the consumer’s dwelling loan holder or servicer that describes all material differences between the terms, conditions, and limitations associated with the consumer’s mortgage loan if he/she accepts the dwelling loan holder’s or servicer’s offer.

• Includes but is not limited to principal balance, interest rate, amount and number of the consumer’s scheduled payments, monthly amounts owed for principal, interest, taxes and any mortgage insurance, amount of any delinquent payments owing or outstanding, assessed fees or penalties and term.

• Notice must be made in clear and prominent manner,

• Disclosure must be made in a clear and prominent manner,

• On separate written page, and

• Preceded by the heading “IMPORTANT INFORMATION FROM YOUR [ ] ABOUT THIS OFFER.” (must be in bold face font that is 2 point type larger than font size of the disclosure).

If offer is a trial loan modification, the notice must the terms, conditions, and limitations of the offer (including that the consumer may not qualify for a permanent mortgage loan modification, and the likely amount of the scheduled periodic payments and any arrears, payments, of fees that the consumer would owe in failing to qualify (16 C.F.R. 322.5(d)).

ASSISTING AND FACILITATING MARS PROVIDER

16 C.F.R. 322.6

Even if you are not considered a mortgage assistance relief service provider, your actions may still be governed by these rules if you assist or facilitate such a provider.  A person cannot provide “substantial assistance or support” to any MARS provider when that person “knows or consciously avoids knowing” that the provider is engaged in any act or practice that violates this rule.

This rule is vague enough to create many questions.  Would this apply to someone who refers people to a mortgage assistance relief service provider?  If you do not check out the person you assist or support does that mean you have "consciously avoid knowing"?  If so, how extensive must you investigation be to comply with this rule?

The bottom line is that your best defense is to make sure that if you have any tie to someone considered a mortgage assistance relief service provider, that they are following all rules. 

WAIVER PROHIBITED

16 C.F.R. 322.8

Some may try to take the easy way out and simply have their clients waive their rights under this rule. The rule; however, specifically provides that it is a violation to obtain, or attempt to obtain, a waiver from any consumer of any protection provided by or any right of the consumer under this rule.

RECORDKEEPING AND COMPLIANCE REQUIREMENTS

16 C.F.R. 322.9

One of the most difficult provisions for many potential MARS providers is the record keeping and compliance requirements.  Many people who are now providing such services have not traditionally kept extensive files.  The record keeping requirement will require a concentrated effort to create a system to keep the appropriate records for the the required time period. 

A MARS provider must keep for 2 years (from the date the record is created) the following records:

• All contracts or agreements between provider and any consumer for any mortgage assistance relief service;

• Copies of all written communications between provider and any consumer occurring prior to the date on which the consumer entered into an agreement with the provider for any mortgage assistance relief service;

• Copies of all documents or telephone recordings created in connection with compliance with paragraph (b) of this section;

• All consumer files containing the names, phone numbers, dollar amounts paid, and descriptions of mortgage assistance relief service purchased, to the extent the mortgage assistance relief service provider keeps such information in the ordinary course of business;

• Copies of all materially different sales scripts, training materials, commercial communications, or other marketing materials for any mortgage assistance relief service (including websites and weblogs);

• Copies of the documentation provided to the consumer as specified by Section 322.5 of this rule (prohibition of advance payments and related disclosures).

The third set of documents referred to above have the qualification "...to the extent...provider keeps such information in the ordinary course of business".  Does this mean that if you haven't kept these documents before that you don't have to keep them now?  That does not make sense and I believe it would be at great risk to rely on this qualification to not keep those specified records.

A MARS provider must also do the following to ensure compliance with the MARS rules:

• Take reasonable steps sufficient to monitor and ensure that all employees and independent contractors comply with this rule. 

• Monitoring of communications directed at specific consumers;

• In telemarketing of mortgage assistance relief services, performing random, blind recording and testing of oral representations made by individuals engaged in sales or other customer service functions;

• Establishing a procedure for receiving and responding to all consumer complaints; and

• Ascertaining the number and nature of consumer complaints regarding transactions in which all employees and independent contractors are involved

• Investigate promptly and fully each consumer complaint received;

• Take corrective action with respect to any employee or contractor whom the mortgage assistance relief service provider determines is not complying with this rule, which may include training, discipline, or terminating such individual; and

• Maintain any information and material necessary to demonstrate its compliance with Section 322.9 (b)(1) – (3).

A mortgage assistance relief provider may keep the records required by this rule in any form, and in the same manner, format, or place as it keeps such records in the ordinary course of business.  In order to meet conditions, a MARS provider must create systems and policies to ensure compliance. The policies created should be reduced to writing.