In an era when affordability constraints are keeping many on the sidelines of homeownership, the Consumer Financial Protection Bureau (CFPB) has launched an inquiry into junk fees that are increasing mortgage closing costs.
In its “Request for Information Regarding Fees Imposed in Residential Mortgage Transactions,” the CFPB wants to understand why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered. According to the CFPB, from 2021-2023, median total loan costs for home mortgages increased by more than 36%. These fees due at closing can strain household budgets and a family’s ability to afford a down payment, as well as limit the ability of lenders to offer competitive mortgages because they must absorb the higher costs, or pass them on to borrowers.
“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”
In 2022, the CFPB reports that median closing costs were approximately $6,000. In recent years the cost of a credit report has risen substantially. Rising costs can prevent lenders from competing for every potential mortgage because these fees drive up the cost of considering an applicant. Title insurance is another major fee paid at closing. Most commonly, lender’s title insurance is paid by the borrower to protect the lender against problems with the property. Consumers typically have limited options to shop around for title insurance.
Polling industry stakeholders
The CFPB’s request for information seeks input from the public, including borrowers and lenders, about how mortgage closing costs may be inflated and constraining the mortgage lending market. The CFPB encourages comments and data from the public and all interested stakeholders. Comments must be received within 60 days of the request for information being published in the Federal Register.
Specifically, the CFPB asks for information about:
- Which fees are subject to competition: The CFPB is interested in the extent to which consumers or lenders currently apply competitive pressure on third-party closing costs. The CFPB also wants to learn about market barriers that limit competition.
- How fees are set and who profits from them: The CFPB wants to learn about who benefits from required services and whether lenders have oversight or leverage over third-party costs that are passed onto consumers.
- How fees are changing and how they impact consumers: The CFPB wants information about which costs have increased most in recent years and the reasons for such increases, including the rise in cost for credit reports and credit scores. The CFPB is also interested in data on the impact of closing costs on housing affordability, access to homeownership, or home equity.
The industry reacts
The American Bankers Association (ABA), Housing Policy Council (HPC), and Mortgage Bankers Association (MBA) have jointly issued a statement in response to the CFPB’s RFI on closing costs:
“Given the significant home-price appreciation and swift inflation that consumers have encountered in recent years, a discussion about policies that address affordability burdens while maintaining healthy and competitive mortgage markets makes good sense.
“Mortgage lenders fully and transparently disclose costs to every borrower on forms developed and prescribed by Congress in the Dodd-Frank Act and implemented by the CFPB. Many of those disclosed costs, such as title, appraisal and credit reports are required by federal statutes, safety and soundness guidelines, and the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and Fannie Mae and Freddie Mac as a condition of buying and insuring a mortgage. Moreover, the services these fees cover mitigate risk for taxpayers and borrowers alike.
“The CFPB recently concluded a formal review and evaluation of its mortgage disclosure rules and praised them for improving borrower understanding and facilitating the ability to shop among lenders. The industry invested considerable resources to implement these new rules just a decade ago. If the CFPB is now modifying its previous position and is considering changing this complex regulatory disclosure regime, a rule-making process governed by the Administrative Procedure Act–and supported by a robust cost-benefit analysis–is the only appropriate vehicle to initiate that work. Such a rule-making process would allow for the proper level of engagement to produce changes that benefit consumers and do not add compliance costs and lead to negative unintended consequences.”
Click here to read the CFPB’s “Request for Information Regarding Fees Imposed in Residential Mortgage Transactions.”
