"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
). 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."
The launch of the Consumer Financial Protection Bureau's (CFPB)