What Happened?
Immediately following President Biden’s State of the Union Address announcing plans to lower homebuyer and refinancing costs, the CFPB issued a blog post seeking public input on how mortgage closing costs impact consumers. The CFPB also announced that it will work to monitor closing costs and, “as necessary, issue rules and guidance to improve competition, choice and affordability.” Significantly, the CFPB also signaled that it will continue to use its supervision and enforcement tools for companies that fail to comply with the law.
Why Is It Important?
The CFPB is putting companies on notice that the Bureau will be taking a close look at the total loans costs for originating a residential mortgage loan, including origination fees, appraisal fees, credit report fees, title insurance, discount points, and other fees. In particular, the CFPB is paying “significant attention to the recent rise in discount points,” and seems concerned with the lack of competition in connection with certain fees, such as lender’s title insurance and credit reports. The CFPB also has expressed concerns with how companies may charge lender credits and fees that are financed into the loan amount (through higher interest rates or mortgage insurance payments).
While the CFPB’s blog post does not identify any specific laws, it does provide some clues. First, the Bureau is concerned that some closing costs are high and increasing due to lack of competition. According to the Bureau, “[b]orrowers 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.” Taking unreasonable advantage of the inability of a consumer to protect their interests in selecting or using a consumer financial product or service could be construed as abusive under the Dodd-Frank Act’s UDAAP statute.
Because certain fees are fixed and don’t fluctuate with the loan size or interest rate, the Bureau is concerned that such fees could disproportionately impact borrowers with smaller loans, such as low-income borrowers, first-time borrowers, or Black or Hispanic borrowers. This could present a fair lending problem under the Equal Credit Opportunity Act. Indeed, the CFPB already has announced that, pursuant to its authority to prevent unfair, deceptive, and abusive acts or practices (“UDAAPs”), the Bureau will begin examining institutions for alleged discriminatory conduct that the Bureau deems to be unfair.
Of course, Congress passed the Dodd-Frank Act to address many of the above concerns, and the TRID Rule already attempts to ensure that consumers are provided with greater and more timely information on the nature and costs of the residential real estate settlement process and are protected from unnecessarily high settlement charges.
What Do I Need to Do?
The CFPB is sending a strong message to the industry that closing fees will be receiving scrutiny from the CFPB. And knowing that the CFPB has been on a hiring spree in its enforcement division, now is a good time to take a close look at the fees being charged from both a UDAAP and fair lending perspective.
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