TikTok - The Newest Platform With Compliance Concerns

By Gabriel Ruzin

Over the past decade or so, online social networks have connected the world like never before. And as the technology has matured and evolved, its usefulness has often been inescapably fine-tuned for a myriad of distinct uses. Depending on your age, career, personal situation, financial situation, or a host of other factors, you may gravitate towards a particular social network and/or groups within that network that appeal to you or that offer useful information or advice that you are seeking on a certain topic. Sometimes these groups and their parent network mesh well. For example, studies show that Facebook is currently the most popular social platform for adults 50 and older. Therefore, one might find that Facebook has a lot of information that adults of that generation would find helpful, but it may not be the #1 go-to source for news on the hottest new dance craze popular with today’s high schoolers. Social networks often depend on finding their niche with a key demographic in order to thrive in today’s cutthroat social landscape.

Understanding #MortgageAdvice

That said, the recent and somewhat sudden rise in popularity of mortgage advice, of all things, on the favorite social platform of Generation Z, TikTok, has been a surprise to many. As of February 2021, 85% of Gen Z (teens and adults age 16-24) admit to visiting TikTok every single day, with 81% spending at least an hour a day on the popular site. Videos with the #mortgageadvice hashtag on TikTok have been viewed over 47 million times, as cutting-edge mortgage professionals have begun reaching out with largely unsolicited advice to this vast and untapped generation of future customers. As members of this young generation move through high school, college, and ultimately prepare to strike out into the world on their own, they are being presented with ‘tips’ and ‘tricks’ in dealing with the mortgage industry from a slew of loan officers and industry insiders. This combination of green & inexperienced buyers-to-be and mortgage professionals eager to make early relationships (and commissions) in an unregulated and informal playing field such as TikTok creates enormous compliance concerns for loan officers or other knowledgeable professionals who decide to stake a claim to this new market.

 The Jury is Still Out

So is TikTok a reasonable venue in which to both dispense helpful (and truthful) mortgage advice, as well as expect such advice? Suffice it to say that the jury is still out. TikTok is a video-centric social media network, but its strength is its quick and concise bites of entertainment. Until July of 2021, the maximum length of a video you could upload to TikTok was one minute. In July, the site extended its maximum to three minutes. That said, three minutes is hardly enough time for a loan officer or other industry professional to explain a loan-related choice, its pros and cons, and break down everything that a prospective customer might consider when making such a choice. Imparting advice on any loan-related topic with such a short attention span is a very delicate task and one that any loan officer must be incredibly careful in approaching.

 Not All Publicity is Good

In a Forbes Advisor article from March of 2021, staff financial writer Natalie Campisi warns mortgage professionals against conveying specific advice on any loan-related subject via an impersonal avenue such as TikTok, as every loan is unique to its borrower. A strategy that may be beneficial to one borrower may be harmful to another. One TikToker in particular is highlighted as an example of what not to do when offering free financial advice, claiming that the minimum credit score required to buy a house decreased in January 2021 from 620 to 600, whether a purchase or refi. In fact, this is utterly false. The Fannie and Freddie minimums remain 620 as of this writing, and while some lenders do sometimes overlay minimum borrower credit scores in specific situations, the TikToker’s video in question mentioned no such caveat, nor did the video mention which lender was offering this 600 minimum score promise. During the duration of the COVID-19 pandemic, many lenders have actually *raised* their score requirements to mitigate risk. In all likelihood, this was an example of one specific situation where a lender agreed to move forward with a borrower who had a 600 credit score, but the creator of the video claimed to be passing it along a ‘secret’ tip that could benefit all prospective homeowners, when no such tip exists.

Campisi also highlighted a video from a self-titled TikTok financial “myth buster” who claimed that 15 year mortgages benefit banks in the long run and that borrowers should always choose a 30 year option in order to make money by ‘compounding interest’ in a savings account with the extra money they would have spent on a 15 year mortgage. In this instance, this advice could potentially be accurate and helpful, but the creator fails to address a couple of key pieces of information: first, what type of account the “extra money” should be placed in; and second, the interest rate of said account. There are near-infinite choices when it comes to keeping - and growing - your money. And without trustworthy information from a reliable source, such advice is ultimately pointless at best and potentially non-compliant at worst.

 Taken with a Grain of Sand

In short, while TikTok does have vast potential for a loan officer or other mortgage professional to make a name for themselves and casually educate the public with broad informational strokes, it can also be a minefield of regulatory pitfalls. “TikTok should be seen as a platform for discovery, rather than the last word on any topic,” Campisi says. “So, whatever advice you do get, make sure to run it by a professional—whether a mortgage lender, experienced financial advisor or other trusted source.”