In a report released on January 13, 2015, the CFPB announced that nearly half of consumers do not shop among multiple lenders before applying for a mortgage loan. Even fewer—about one of every four—submit multiple applications to gauge the best deal, the Bureau says.
The report is the first to harness data gathered by the National Survey of Mortgage Borrowers, an ongoing research effort funded jointly by the Bureau and the Federal Housing Finance Agency (FHFA). Its findings rely on responses gathered from roughly 1,900 consumers who took out home-purchase mortgages in 2013.
Among its salient points, the report concludes that the vast majority of consumers—about 70 percent—gather information about mortgage loans primarily from lenders and brokers. Not surprisingly, the report expresses concern that these parties may not offer the most objective information, given their interest in closing the transaction. In conjunction with the report’s publication, the CFPB announced steps that aim to provide another avenue for consumers to gather information about available mortgage products. These steps are discussed below.
The report also concludes that consumers who identify as “unfamiliar” with the basic features of mortgage loans are less likely to shop around for the best deal, and that factors not related to cost, like a lender’s reputation and proximity of a branch office, are important to a significant minority of mortgage borrowers.
Though likely no surprise to the industry, the data and their attendant conclusions suggest that the new TILA/RESPA integrated disclosures, set to be implemented in August 2015, may not, by themselves, sufficiently address consumers’ failure to shop the mortgage market. Federal regulatory efforts traditionally have focused on encouraging consumers to shop for mortgage loans through an easier, more streamlined loan application process. The reality emphasized by the report, however, is that to the extent a consumer shops around for a mortgage, the shopping typically ends when the consumer submits a loan application. Thus, prior efforts have targeted the wrong point in the process. The report demonstrates that the CFPB is attempting to address this issue.
Alongside the report, the CFPB has rolled out a new landing page called the “Owning a Home Toolkit” within its existing website. The toolkit includes factsheets to get potential homebuyers started shopping for a mortgage loan and checklists to prepare borrowers for a closing. The toolkit’s brass ring, though, is its “Rate Checker” tool, which the Bureau disclaims is still in beta testing. The Rate Checker allows a consumer to enter information about his or her location, credit profile, desired loan amount, and collateral value. Pairing this information with daily-updated data from financial institutions (via a private research firm), the Rate Checker displays the prevailing interest rates for which the consumer may qualify, as well as the number of financial institutions offering those rates to consumers with the consumer’s profile. Though wildly simplified and, at this point, a little clunky, this tool could provide potential borrowers with useful information about typical products in the mortgage market, and, toward the Bureau’s goal, it could help consumers better assess terms offered once they apply for a loan. The concern, of course, is that consumers may unduly rely on information produced by the tool, which does not account for the full scope of consumers’ risk profiles.
At the end of the report, the CFPB notes that the current analysis did not evaluate the extent to which more shopping by consumers improves mortgage outcomes, such as better loan terms and fewer delinquencies and foreclosures. The CFPB advises that the National Mortgage Database project (which is part of the CFPB’s joint endeavor with the FHFA) hopes to develop a much better understanding of consumer shopping behavior and how it affects mortgage outcomes.
