CFPB launches public inquiry into mortgage junk fees

Industry offers its reaction

CFPB launches public inquiry into mortgage junk fees

The Consumer Financial Protection Bureau (CFPB) has announced a public inquiry to delve into junk fees that it suggests may be increasing mortgage closing costs. The MBA, and a host of trade groups, believe the inquiry “makes good sense”.

According to the CFPB, the goal of the inquiry is to determine who is benefiting from increasing closing costs and how they could potentially be lowered.

How high are closing costs?

In its analysis, the CFPB suggests that closing cost have risen sharply in recent times. From 2021 to 2023, it reports that median total loan costs have leapt by 36%. It was suggested that in 2022, median closing costs were in the region of $6,000.

It notes that these unavoidable fees are placing a burden on budgets and the ability to afford down payments. In addition, it suggests they may be limiting the ability of lenders to offer competitive mortgages as they need to absorb 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 particular, it noted the rising cost of a credit report, as well as fees for title insurance.

Read the full request for information here.

What does the mortgage industry think of the inquiry?

A host of trade groups issued a joint statement on the inquiry – including The American Bankers Association (ABA), the Housing Policy Council (HPC) and the Mortgage Bankers Association (MBA).

The statement noted that a discussion makes “good sense” given home price appreciation and the swift rise in inflation that has taken place over the last couple of years.

“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 statement reads. “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.”

What do you think of the planned inquiry? Leave a comment below with your thoughts.