Complying with a Massachusetts advertising rule for brokered loans


Article By: Ben Giumarra, Spillane Consulting Associates, Inc.

A quick look at a rule that could trip some responsible lenders up.

It’s commonplace for a mortgage lender- including banks and credit unions- to act as a broker on certain transactions. This often occurs with loan types such as reverse mortgages or FHA loans, loans that the lender rarely sees or are too complex to originate without some assistance.

So for example, you’re a community bank with a good variety of mortgage offerings. You have a small amount of interest from your customer base in reverse mortgage loans, but have no one on staff with reverse mortgage experience. So instead of disappointing your customer, you partner with an approved reverse mortgage lender and act on those loans as a broker. Better than nothing, right?

Yeah- that is right. It’s probably a good solution for many people.

But there are a couple of small things, at least in Massachusetts, that might trip a lender up. First, the lender should make sure any partner is approved by Massachusetts to offer reverse mortgages. Click here for the current list. Another sticking point is with advertising – let’s check it out now.

Mortgage Broker Advertising Disclosure

There’s a Massachusetts rule (regulation 209 CMR 42.12A(4) that applies if the lender (that’s acting in this example as a broker) decides to advertise this. (And it’s easy to advertise this today – just adding it to the website or list of products on LinkedIn, for example).

It is a prohibited act or practice for a mortgage broker to advertise any interest rate or loan term described in 12 CFR 1026.24(c) in any media without the following statement: “We arrange but do not make loans.” No advertisement by a mortgage broker in any media shall contain language which indicates or suggests that the mortgage broker will fund or approve a mortgage loan or guarantee any rate.

This is a little rule that most community banks, credit unions, and other mortgage lenders never have to worry about. BUT .. for such an institution that decides to operate as a broker for certain loans, they should be careful to comply.

Just a simple fix – this isn’t something that should discourage you from advertising these things.

Applied to Broker Partnership Agreement Example

Just to see this in an example – let’s imagine you’re a community bank and brokering reverse mortgage loans, as in the example above.

Because your outside originators find reverse mortgages distracting, you assign an inside originator to handle all reverse mortgage requests. This inside originator develops a niche business, happily originating a few reverse mortgages a month that she sends to the approved lender. Then things start to slow down – in an effort to boost volume, the originator distributes a flyer explaining the pros/cons of reverse mortgage loans at a few different places (I tried to think of non-controversial examples of places where “reverse mortgage candidates” could be found, but came up empty- The hospital? The local Italian restaurant at 4:00 pm? Facebook?)

Wherever those flyers are distributed – they should have the disclosure: “We arrange but do not make loans.”  This is true even for approved and licensed mortgage lenders who just happen to be operating as a broker in this one instance.

In Other News

  • “My parents didn’t want to move to Florida, but they turned 60 and that’s the law.” – Jerry Seinfeld.
  • Recommend you paying attention to the FDIC’s proposed guidance on third-party lending, which could include everything from wholesale/correspondent to white label credit cards and indirect lending. Comments have been in for the FDIC to consider since October 2016 – waiting to see what happens.
  • Appreciate everyone who contributed to my colleague Cheryl Kilby’s Relay for Life page (team “100 Persinko”) – and that includes all those anonymous donors! 

On My Mind …

Are you someone with a Drive for Results? Here’s a test (adopted from For Your Improvement: A guide for Development and Coaching by M. Lombardo and R. Eichinger):

A. You’re good!

  • Pushes self and others
  • People count on you to exceed your goals

B. You have some work to do…

  • Don’t go “all out” on tasks
  • Don’t get things done on time
  • Something always gets in the way
  • Not bold or committed enough to push it through

“High expectations are the key to everything.”

– Sam Walton (Wal-Mart)


Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.  

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