The Consumer Financial Protection Bureau (CFPB), recently issued a Request for Information (RFI) related to fees charged by providers of mortgages and related settlement services. In his statement, Director Chopra discussed the impact of the increasing costs on lenders and consumers, and stated that the CFPB plans to address those costs. Comments on the RFI are due by August 2, 2024.

In the RFI, the CFPB states that closing costs, particularly the costs the lender imposes on the borrower, have risen, and from 2021 to 2023, the median total loan costs increased by over 36% on home purchase loans. This statement appears to reflect either a misunderstanding of market forces that have significantly contributed to a rise in closing costs, or an intent of the CFPB to ignore those forces to promote an agenda to reshape how the mortgage market imposes bona fide closing costs.

During the 2021 to 2023 period cited by the CFPB, mortgage interest rates rose substantially, housing prices rose dramatically, and worldwide inflation developed. In a statement by trade associations responding to the RFI, they pointed to “significant home-price appreciation and swift inflation.” These market forces significantly contributed to the rise in closing costs for various reasons, including (1) consumers were paying discount points and temporary buydown fees to lower the interest rate, which did not occur with as great a frequency during the prior period of low interest rates, particularly in 2020 and 2021, (2) the practice of lenders paying closing costs in return for charging a higher interest rate subsided, (3) the increase in housing prices also lead to an increase in costs tied to the loan amount or housing price, and (4) overall costs increased because of inflation.

The CFPB also noted that because “[m]any of these costs are fixed and do not change based on the size of the loan, [the result is] an outsized impact on borrowers with smaller mortgages, such as lower income or first-time homebuyers.” Further, the CFPB states that increased credit reporting fees create challenges for lenders, pushing them to potentially evaluate fewer applications or absorb the costs themselves. The CFPB noted that lenders do not have options regarding credit report fees because, in many cases, they are required to obtain “tri-merge” reports in order to sell loans in the secondary market or maintain insurance from federal programs. According to the CFPB, one midsize lender reported an increase for the hard-pull tri-merge report from $50 to $110 in the last two years, and a large lender reported an increase from under $30 to over $60. In December 2023, the Mortgage Bankers Association raised concerns about the rising costs of credit reports.

The CFPB goes on to discuss origination fees, which can include charges for processing the application, underwriting and funding the loan, and other administrative services. The CFPB claimed that lenders can vary which costs they include in the interest rate or origination charge and which they charge separately, “further complicating borrowers’ ability to compare costs across loan products.” The CFPB did not acknowledge the disclosure of closing costs required by the TILA/RESPA Integrated Disclosure (TRID) rule at the time of application and before closing, nor that in announcing the October 2020 report on its assessment of the rule the CFPB stated “[t]he evidence available for the assessment indicates that the TRID Rule improved consumers’ ability to locate key information, compare terms and costs between initial disclosures and final disclosures, and compare terms and costs across mortgage offers.”

In their statement responding to the RFI, the trade associations noted that “the industry invested considerable resources” to implement the TRID rule and that after the CFPB’s assessment of the TRID rule the CFPB praised the rule “for improving borrower understanding and facilitating the ability to shop among lenders.” The trade associations then stated that 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.”

The CFPB requests comments 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. Specifically, the CFPB requests comment on the following:

1. Are there particular fees that are concerning or cause hardships for consumers?
2. Are there any fees charged that are not or should not be necessary to close the loan?
3. Provide data or evidence on the degree to which consumers compare closing costs across lenders.
4. Provide data or evidence on the degree to which consumers shop for closing costs across settlement providers.
5. How are fees currently set? Who profits from the various fees? Who benefits from the service provided? What leverage or oversight do lenders have over third-party costs that are passed onto the consumer?
6. Which closing costs have increased the most over the past several years? What is the cause of such increases? Do they differ for purchase or refinance? Please provide data to support if possible.
7. What is driving the recent price increases of credit reports and credit scores? How are different parts of the credit report chain (credit score provider, national credit reporting agencies, reseller) contributing to this increase in costs? What competitive forces are or can be brought to bear on these costs? What are the impacts on consumers of the increased costs?
8. Would lenders be more effective at negotiating closing costs than consumers? Are there reports or evidence that are relevant to the topic?
9. What studies or data are available to measure the potential impact closing costs may have on overall costs, housing affordability, access to homeownership, or home equity?

[View source.]