MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article discusses the Mortgage Assistance Relief Services (MARS) rule. Enroll in firsttuesday’s 8-Hour NMLS CE to renew your California MLO license and learn more about fraud and abuse prevention in your practice.

The MARS Rule

Regulation O enacts the Mortgage Assistance Relief Services (MARS) rule, which is designed to protect consumers by banning potentially deceptive practices of mortgage assistance relief service providers. The MARS rule and Regulation O went into effect in 2010 in response to widespread abuse of consumers in mortgage distress. The guidelines and restrictions are intended to maintain transparency and honest dealings between service providers and consumers.

Originally, the Federal Trade Commission (FTC) had rulemaking authority over the MARS rule. This authority shifted to the Consumer Financial Protection Bureau (CFPB) in July of 2011. [12 CFR §1015]

Before moving on to the rule’s requirements, let’s define some critical MARS terms.

A mortgage assistance relief service is any arrangement, offering or program provided to consumers for their consideration, which claims to aid or attempt to aid consumers with mortgage-related issues. [12 CFR §1015.2]

Mortgage assistance relief services are designed to aid consumers, or individuals who are obligated under any loan secured by a dwelling. [12 CFR §1015.2]

A dwelling refers to a residential structure containing four or fewer units largely used for personal, family or household purposes. The structure does not need to be attached to real property to be considered a dwelling. Residences considered a dwelling include individual condominium units, cooperative units, mobile homes, manufactured homes or trailers. [12 CFR §1015.2]

A dwelling loan is any loan that relies on a dwelling and its associated deed of trust or mortgage as collateral. The dwelling loan holder is the person or party who possesses the dwelling loan subject to a mortgage assistance relief service. [12 CFR §1015.2]

Servicers are the individuals or parties that are responsible for:

  • receiving scheduled payments from a consumer according to the terms of the dwelling loan that is the subject of the offer to provide mortgage assistance relief services, including amounts for escrow accounts under the Real Estate Settlement Procedures Act (RESPA); and
  • making the payments of principal and interest and any other payments the consumer is obligated to pay according to the terms of the mortgage servicing loan documents or servicing contract. [12 CFR §1015.2]

Mortgage assistance relief service provider

Any person or party who provides, extends an offer to provide or arranges for others to provide any mortgage assistance relief service qualifies as a mortgage assistance relief service provider. [12 CFR §1015.2]

Mortgage assistance relief service providers do not include:

  • the dwelling loan holder;
  • any agent or contractor of the dwelling loan holder;
  • the servicer of a dwelling loan; or
  • any agent or contractor of the servicer of a dwelling loan. [12 CFR §1015.2]

Real estate professionals who negotiate or otherwise arrange short sales for their clients are considered mortgage assistance relief service providers. However, in 2010, the FTC issued a stay of compliance for real estate professionals engaged in assisting consumers in negotiating short sales.

Note that while real estate professionals who arrange short sales are temporarily stayed from complying with the MARS rule by the FTC, real estate professionals who arrange loan modifications (for which loan originator licenses may be required) are not exempt. Thus, the rules discussed here apply to those individuals.

Services offered to consumers for mortgage assistance relief include:

  • halting or delaying any mortgage or deed of trust foreclosure sale for the consumer’s dwelling or any repossession of the consumer’s dwelling;
  • saving the consumer’s dwelling from foreclosure or repossession;
  • negotiating, acquiring or preparing a modification of any term of a dwelling loan, including a reduction in the amount of interest, principal balance, monthly payments or fees;
  • obtaining any forbearance or alteration in the timing of payments from any dwelling loan holder or servicer on any dwelling loan;
  • negotiating, acquiring or preparing any extension of the timeframe within which the consumer can:
    • cure their default on a dwelling loan;
    • reinstate their dwelling loan by paying the full outstanding debt;
    • redeem a dwelling; or
    • exercise any right to reinstate a dwelling loan or redeem a dwelling;
  • acquiring a waiver of an acceleration clause (a demand on the borrower to pay the full remaining amount of a loan because they breached their contract or promissory note);
  • acquiring a waiver of a balloon payment (a particularly large payment owed at the end of the loan);
  • negotiating, acquiring or preparing:
    • a short sale of a dwelling;
    • a deed-in-lieu of foreclosure; or
    • any other disposition of a dwelling other than a sale to a third party who is not the dwelling loan holder. [12 CFR §1015.2]

Mandatory disclosures in commercial communication

Regulation O requires certain disclosures to be made in commercial communications between mortgage assistance relief service providers and the consumers to whom they provide services.

A commercial communication is as anything written, spoken, illustrated or otherwise conveyed, regardless of language, used to make a sale or to attract consumers to a service or program.

Regulated mediums include, but are not limited to:

  • labels, packages and package inserts;
  • radio, television, cable television, films and infomercials;
  • newspapers, magazines and catalogues;
  • brochures, pamphlets and leaflets;
  • circulars, mailers and letters;
  • book inserts, free standing inserts and point of purchase displays;
  • posters, charts, billboards, public transit cards and slides;
  • audio programs transmitted over a telephone system;
  • telemarketing scripts, on-hold scripts and upsell scripts;
  • promotional materials and web pages;
  • training materials provided to telemarketing firms; and
  • the internet and cellular networks. [12 CFR §1015.2]

There are two different categories of commercial communications:

  • the general commercial communication; and
  • the consumer-specific commercial communication.

Each of these categories of communications have their own requirements. Next week, we’ll discuss which types of communications fall within each of these categories and the different disclosures required under each.