Regulator scrutinizes rising costs, industry leader says fees cover vital mortgage services
The mortgage banking industry is disputing claims by the Consumer Financial Protection Bureau that excessive “junk fees” are contributing to a lack of housing affordability for homebuyers.
In a blog post this week, the CFPB said it is investigating rapidly increasing mortgage closing costs like lender fees, discount points, and title insurance premiums that lack market competition. The bureau described some of these charges as “junk fees” that make housing less affordable.
These junk fees include lender title insurance, appraisal charges, and discount points.
“Lender’s title insurance is one example of a fee borrowers face at closing where the borrower has no control over cost,” the bureau stated. “The amount that borrowers pay for lender’s title insurance is often much greater than the risk.”
The CFPB also criticized increasing fees for credit reports, saying, “The credit reporting industry is highly concentrated, with just a handful of dominant players dictating the price of credit reports and scores.”
However, Bob Broeksmit, president and CEO of the Mortgage Bankers Association, responded in a statement, accusing the CFPB of having “little understanding of how the mortgage market works.”
“The fees mentioned are clearly disclosed to borrowers well before a home purchase on forms developed and prescribed by the Dodd-Frank Act and the CFPB itself,” Broeksmit said. “The illogical use of the term ‘junk fee’ contradicts even the White House’s own definition, which cites the lack of disclosure of the fee being charged.”
He argued that the CFPB’s 2015 mortgage closing cost disclosure rules were praised by the bureau itself in 2020 for improving transparency.
According to the CFPB, “Borrowers are required to pay for many of the costs associated with closing a home loan but cannot pick the provider and do not benefit from the service. In many cases, the lender simply picks from a very small universe of providers, and the costs are then passed on to the borrower.”
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Broeksmit countered that services like title insurance, appraisals, and credit reports are “integral to the efficient operation of the mortgage market” and are often required by institutions like FHA, VA, and government-sponsored enterprises.
“Consumers and taxpayers benefit from services like appraisals that validate a home’s purchase price, flood hazard certifications that determine whether a home is in a risky flood zone, title insurance that protects the borrower’s ownership interest in the house being financed, and credit reports that make it possible to objectively assess a borrower’s ability to repay,” he stated.
The bureau plans to seek public input and potentially issue new rules to improve affordability around closing costs. “We will also continue using our supervision and enforcement tools to make it safer for people to purchase homes and to hold companies accountable when they violate the law,” the blog post stated.
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