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Question: Are there any potential issues with advertising “Buy Now, Refinance Later” and/or offering discounts on such refinance?

Answer:

Yes, advertising that a consumer should “buy now and refinance later” comes with potential risks – particularly depending on the express language used in the advertisement. It must be clear to a consumer that refinancing is not guaranteed as the consumer may not qualify or there may not be a benefit to refinancing if rates do not drop. The advertisement should also disclose that the consumer will have to apply to refinance the purchase loan at a later date and that there are costs and fees associated with that separate refinance loan transaction. Failing to provide this information may be misleading and/or deceptive in the eyes of a regulator.

Additionally, Fannie Mae specifically prohibits a seller/servicer from delivering a loan to it if the seller/servicer (or any affiliate or third party originator) and the borrower have entered into an arrangement for special terms, such as reduced fees, for a future refinance of the loan. In order to bypass this prohibition, the seller/servicer must obtain a negotiated contract from Fannie Mae that allows delivery of the loan in spite of its shortened prepayment expectation. See Selling Guide B2-1.3-04, Prohibited Refinancing Practices.