CFPB issues info request for mortgage closing costs in assault on ‘junk fees‘

The request

“Mortgages come with many associated fees and costs, referred to as ‘closing costs,’ that are due by the time the loan closes or when the borrower signs the loan agreement,” the CFPB stated. “These closing costs, and particularly the costs the lender imposes on the borrower as part of the cost of getting the loan, have recently risen sharply. Lenders are also impacted by rising closing costs.”

Costs for associated services, including credit scores, credit reports and employment verifications, all have increased demonstrably in recent years, the bureau said.

“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,” the RFI explained.

The increase in many of these costs are driven by so-called “junk fees,” the bureau said. Between 2021 and 2023, median total loan costs rose by more than one-third (36%) while the median dollar amount paid by borrowers for these fees hit $6,000 in 2022.

“This, along with increased home prices and interest rates, have placed increased pressure on borrowers’ budgets, contributing to a lack of access to credit and decreased home affordability,” the RFI stated, citing December 2021 research from Fannie Mae to substantiate its claims.

“Many of these costs are fixed and do not change based on the size of the loan, resulting in an outsized impact on borrowers with smaller mortgages, such as lower income or first-time homebuyers,” the document stated.

Assessing fee impacts

The Mortgage Industry Standards Maintenance Organization (MISMO) lists “more than 200 fees that have been found on closing disclosures,” which could drive up costs for borrowers, the bureau said. It added that consumers can wind up paying more when costs are split among a myriad of different fees.

“Other research has demonstrated that mortgage borrowers underreact to closing cost pricing. The financial impact of these closing costs can be amplified when they are financed and included in the loan amounts,” the RFI stated.

To that end, CFPB is soliciting the public for input on “the impact closing costs have on borrowers and the mortgage market, including the degree to which they add overall costs or otherwise cause borrower harm, and any impact such fees may have on the ability to purchase a home, anticipate and afford monthly payments, or refinance an existing mortgage.”

The CFPB said it is seeking responses 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” on a series of nine questions.

These questions are related to the impacts that fees can have on consumers; whether there are any fees that are of particular concern to these groups; whether any charged fees are considered “necessary” to close the loan; how such fees are set and which entities profit from them; and what is driving increases in costs for things like credit reports.

The bureau is also asking commenters to weigh in on whether “lenders [would] be more effective at negotiating closing costs than consumers.”

Comments are due by Aug. 2, 2024, and can be submitted via the federal rulemaking portal on Regulations.gov, via email through a dedicated address or via traditional mail.

Trade group response

The Community Home Lenders of America (CHLA) lauded the move by the bureau, according to a statement from executive director Scott Olson.

“CHLA commends the CFPB for highlighting third-party mortgage service provider junk fees, which can harm consumers and reduce access to homeownership,” he said. “In particular, we are pleased the CFPB focused on two areas of concern to our members, credit scoring and title insurance.”

Olson added that it is important for “any actions resulting from this RFI do not reduce transparency and should focus on solutions that increase competition like [the Federal Housing Finance Agency (FHFA)]’s refi title program.”

In a joint response, the American Bankers Association (ABA), Housing Policy Council (HPC) and Mortgage Bankers Association (MBA) said that many of the fees targeted by the bureau are lawfully disclosed and can mitigate risks for both taxpayers and mortgage borrowers.

“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 joint statement read. “The industry invested considerable resources to implement these new rules just a decade ago.

“If the CFPB is modifying its position on the matter 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,” the groups said.

That kind of rulemaking 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.”

The American Land Title Association (ALTA), the national trade group for title insurers, released a statement in which it reported that the cost of title insurance has decreased by 5% in the past five years.

The organization said it looked forward to participating in the RFI process so it can ”educate federal agencies as to how the title insurance market works and collaborate with policymakers on thoughtful approaches to the important issue of housing affordability.”

”Lumping title insurance and settlement services into the category of ‘junk fees‘ conflicts with the White House‘s own definition, which cites the lack of disclosure of the fee being charged,” ALTA wrote. ”CFPB‘s own research from as recently as 2020 shows these disclosures are working to educate consumers about closing costs.”

This story was updated with information from the American Land Title Association.