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Mortgage Industry Braces for Storm of Further CFPB Scrutiny

ABSTRACT: The mortgage industry adds further scrutiny from the CFPB to its list of concerns for what the future may hold as the Biden Administration targets home purchase loans in its “war on junk fees.”

On May 30, 2024, the Consumer Financial Protection Bureau (“CFPB”) released a Request for Information regarding fees related to residential mortgages transactions. This comes on the heels of the Biden Administration’s recent identification of the mortgage industry as a new target in its crackdown on junk fees. Industry participants, consumers and others can submit their comments to the CFPB through August 2, 2024.

 The mortgage industry found itself in the crosshairs of the Biden Administration after recent CFPB data showed a surge in the costs of closing on a home purchase of more than 20% bringing the average costs to close to nearly $6,000. Similarly, the costs for refinancing have jumped nearly 50% bringing the average closing costs close to $5,000.

The CFPB and Administration have identified discount points as a particular area of concern for consumers.  In 2023 more than 58% of purchasers paid discount points, up from 30% in 2021.  The percentage of consumers seeking discount points will likely increase as mortgage rates remain in the 6-7% range. The Request for Information highlights inclusion of discount points in advertised rates as one way mortgage providers can mislead consumers. 

The home purchaser’s inability to shop around, related to the closing costs a buyer must pay, seems to be of particular interest to the CFPB in the Request for Information on mortgage services fees.

The Biden Administration has seemingly focused on closing costs because of their outsized impact on lower income buyers. Many of the closing costs are fixed and do not change based on the size of the loan, creating a larger impact on borrowers with smaller mortgages, like lower income or first-time buyers. 

Rising closing costs can be explained, at least in part, by rising costs paid by lenders during the closing process.  The costs of obtaining credit reports for commercial purposes have increased 25 to 400 percent according to Lenders.  The cost of title insurance has risen, as has the cost of most types of insurance policies recently. 

When the Biden Administration has targeted other industries in its junk fees war, CFPB scrutiny and rules have closely followed.  A Rule capping late fee payments was recently issued when the Administration targeted the credit-card industry, see our recent blog articles for more information.

Baker Sterchi attorneys will continue to monitor the CFPB to evaluate the changing landscape of the legal field as it relates to the mortgage industry. Contact our Financial Services Practice Group for more information.