As part of its ongoing investigation against so-called “junk fees,” the Consumer Financial Protection Bureau (CFPB) is asking for public comment related to escalating mortgage closing costs.
Lenders and borrowers alike are encouraged by the CFPB to submit input, with request for information (RFI), dated May 30, asking for comments on or before Aug. 2. Per the text of the request, the CFPB is “particularly interested in hearing from consumers, industry participants, social services organizations, small business owners, consumer rights and advocacy organizations, legal aid attorneys, academics and researchers, and state and local government officials.”
In particular, the RFI noted that home loan closing costs, particularly those imposed by the lender on the borrower, have jumped by more than 36% on purchase mortgages from 2021 to 2023. In 2022, the median paid by borrowers was nearly $6,000.
Taken in tandem with high mortgage rates and high home prices, such costs have contributed to the erosion of affordability that has held back residential market activity. With many such fees having a fixed amount and not varying based on loan size, the impact on borrowers with smaller mortgages, such as low-income or first-time homebuyers, is disproportionate.
The CFPB also noted the impact of the fees on lenders, with the costs for necessary procurements like credit scores, credit reports, employment verification, title insurance and other settlement services having grown substantially in the past few years.
“Dominant market players have driven up costs through annual price increases that significantly outpace inflation, leaving lenders with little choice but to pay these higher rates,” the RFI reads. “These higher costs are passed on to the consumer or eat into lenders’ bottom lines, in a market where mortgage originators are already facing financial challenges. Lenders facing higher costs for evaluating applicants due to increasing costs for the basic information in credit reports may rationally choose to evaluate fewer applicants, potentially resulting in decreased access to credit.”
Because of such concerns, the CFPB is specifically asking for answers to the following questions:
- Are there particular fees that are concerning or cause hardships for consumers?
- Are there any fees charged that are not or should not be necessary to close the loan?
- Provide data or evidence on the degree to which consumers compare closing costs across lenders.
- Provide data or evidence on the degree to which consumers shop for closing costs across settlement providers.
- How are fees currently set? Who profits from the various fees? Who benefits from the service provided? What leverage or oversight do lenders have over third-party costs that are passed onto the consumer?
- Which closing costs have increased the most over the past several years? What is the cause of such increases? Do they differ for purchase or refinance?
- What is driving the recent price increases of credit reports and credit scores? How are different parts of the credit report chain (credit score provider, national credit reporting agencies, reseller) contributing to this increase in costs? What competitive forces are or can be brought to bear on these costs? What are the impacts on consumers of the increased costs?
- Would lenders be more effective at negotiating closing costs than consumers? Are there reports or evidence that are relevant to the topic?
- What studies or data are available to measure the potential impact closing costs may have on overall costs, housing affordability, access to homeownership, or home equity?
The CFPB’s inquiry has already prompted a response from three industry groups, with the American Bankers Association, Housing Policy Council and Mortgage Bankers Association issuing a joint statement. While the groups agreed that the recent rise in costs merits “a discussion policies that address affordability burdens while maintaining healthy and competitive mortgage markets,” they also noted that many fees and costs are already covered by mandated disclosures.
“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,” the groups said in the statement. “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.”
