Is the CFPB’s new tool setting up the mortgage industry to fail?

by 16 Jan 2015
The launch of the Consumer Financial Protection Bureau's (CFPB) "Owning a Home” tool has caused uproar in the mortgage industry, and many claim the tool contradicts rules the regulator has already in place.

The education tool is part of the CFPB's Know Before you Owe mortgage initiative announced in November 2013. The campaign’s loan disclosure documents were created in an effort to more efficiently lay out mortgage terms for homebuyers and include two new forms: the Loan Estimate and the Closing Disclosure to ensure compliance.

John Haring, compliance enablement manager at Ellie Mae, said the CFPB’s new tool works much like popular interest rate search tools that consumers today can find online at places like Bankrate, LendingTree and Zillow.

Consumers choose their credit range, state, home price and down payment along with simple loan options for fixed vs. adjustable rate loan, loan term (15 or 30 years) and loan type (e.g. conventional, FHA or VA). Then the website will produce a bar graph of the number of lenders offering particular rates based on that criteria along with the following statement, “In [state], most lenders in our data are offering rates at or below [x.xxx%].”  

The tool gives consumers the ability to get an idea of the differences in interest rates based on credit scores, loan-to-value ratios and loan types for different states. However, Haring added, "Most consumers would probably be more interested in the effect on their monthly payment as opposed to the total amount of interest paid, but perhaps the CFPB will look into adding more information about payments in the future."

Marc Savitt, president of the National Association of Independent Housing Professionals, added that the tool doesn't provide vital information to consumers. For instance, monthly payment estimates, closing costs and APR. "They tell you to shop the interest rates, but they don't tell consumers what it costs to get that interest rate."

David Williams, vice president of Pasadena, California-based RightStart Mortgage, echoed Savitt's sentiments, adding the tool doesn't feature all of the fees that come with a mortgage. "I’m concerned that it doesn’t address all the fees associated with these rates. It may set the borrowers up for a major surprise when they actually do get a Good Faith Estimate from a mortgage professional."

Williams added while he agrees with the message that the CFPB is trying to send about encouraging borrowers to shop more for loans, he sees potential problems with the tool. "It’s a very narrow view of what rates and programs are available," he said. "Not all borrowers are created equal and they should have one-on-one attention from a licensed mortgage professional to analyze all the options."

Savitt said the tool contradicts other regulations the CFPB already has in place. For example, the CFPB is encouraging consumers to use the tool to negotiate for a better deal, something he said could potentially get mortgage professionals in trouble. "Before the CFPB that was fine and we would do that every once and while, but the problem is if you do it today, the CFPB will come after you for disparate impact or disparate treatment. What they [CFPB) have told us— time and time again in meetings— is that you can't give a discount to borrowers, because you should give the best deal up front."

Savitt added the move makes mortgage professionals appear dishonest to consumers. "Their job is to regulate us, not to give misleading and confusing information to the consumer," he said. "Now, we are going to appear dishonest to borrowers."

COMMENTS

  • by D Hite | 1/16/2015 10:54:37 AM

    The only thing dishonest in all the scenarios is the government!

  • by Anonymous | 1/16/2015 11:18:02 AM

    If any single one of us did this either in print or electronically online we would be fined, sanctioned, and the site would be taken down. There is no mention of fees, APR, and what it takes to derive that rate. It is illegal to advertise rates without disclosing these factors in the same size font and type face.

    Unacceptable. This site needs to be taken down and those responsible for it need to be held to the identical standards that every one of us are held to. Pay the fines, deal with the sanctions, and then repost it following the rules they themselves set for us all.

  • by Viva la Revolucion | 1/16/2015 12:09:43 PM

    Haven't they done enough damage to the "industry" (or what's left of it)? The ATR rules alone have devastated my client base, and all I hear are ads from lenders offering lower fico scores, higher LTVS, one day out of BK, one year out of foreclosure etc., etc. What about the person with perfect credit (well over 800 scores), low LTVS (some well under 50%), enough assets to pay off the mortgage several times over, that happen to have a 44 back end when some idiot cubicle bureaucRAT decided it should be 43 and the lenders are too scared of buy backs and CFPB audits to be able to make a business decision on their own? They've taken all the ability to think rationally away from underwriters, and made the entire industry cower in the fetal position in the corner. It's truly disgusting what they've done to this industry and what they are trying to do to the entire country. WAKE UP SILENT MAJORITY: https://www.youtube.com/watch?v=ETKuoHlYuHM

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