CFPB Requests Comment on Junk Fees in Mortgage Closing Costs
The CFPB issued a public inquiry into junk fees that are elevating mortgage closing costs. The CFPB aims to uncover "why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered."
The CFPB found that the closing costs borrowers pay in connection with a mortgage have risen in recent years. From 2021 to 2023, the median total loan costs for home mortgages have risen by more than 36% due to unavoidable fees borrowers pay at closing, straining their ability to save up for a down payment. These fees limit the ability of lenders to offer competitive mortgages, since they have to either absorb the higher cost or pass it onto their borrowers.
The CFPB requested information from borrowers and lenders about how mortgage closing costs may be inflated and constrain the mortgage lending market. The CFPB is seeking information regarding:
- Which fees are subject to competition: "The CFPB is interested in the extent to which consumers or lenders currently apply competitive pressure on third-party closing costs. The CFPB also wants to learn about market barriers that limit competition."
- How fees are set and who profits from them: "The CFPB wants to learn about who benefits from required services and whether lenders have oversight or leverage over third-party costs that are passed onto consumers."
- How fees are changing and how they affect consumers: "The CFPB wants information about which costs have increased most in recent years and the reasons for such increases, including the rise in cost for credit reports and credit scores. The CFPB is also interested in data on the impact of closing costs on housing affordability, access to homeownership, or home equity."
Comments are due on or before August 2, 2024.
Commentary
This latest "junk fees" initiative from the CFPB, in coordination with the White House, shows the further expansion of the battle against "junk fees" across the board into now what is a multi-agency effort to combat "junk fees" in housing. The CFPB seems particularly interested in credit report and title insurance "junk fees." The RFI, and the date of responses, seem both a bit rushed and thin, as well as the attempt to expand upon the CFPB's recent announcement at the Mortgage Bankers Association related to credit reporting costs. It is also interesting that the CFPB left out certain costs from its RFI, such as recording fees, transfer taxes, and various insurance premiums, that have a role in the amount paid by consumers at closing–in some places even a larger cost than that of title insurance. Importantly, the CFPB states that the findings from this inquiry will help inform rulemaking, guidance, and other policy initiatives, so we should expect further regulatory input in this space as we move forward.