WASHINGTON – The Consumer Financial Protection Bureau (CFPB) launched a public inquiry into mortgage “junk fees” to “understand why closing costs are increasing, who is benefiting and how costs for borrowers and lenders could be lowered.”
The CFPB said the closing costs borrowers pay in connection with a mortgage have risen steeply in recent years. From 2021 to 2023, median total loan costs for home mortgages increased by over 36%, according to a CFPB analysis. The bureau said the costs can strain household budgets and limit competition among lenders. The CFPB is seeking comments and data from the public and all interested stakeholders by Aug. 2.
“When people purchase a home with a mortgage, they pay a number of fees, such as charges for credit reporting and title insurance,” the CFPB said. “Even if disclosed, borrowers are compelled to pay the fees and may have no control over cost. In 2022, median closing costs were $6,000, and these fees can quickly erode home equity and undercut homeownership.”
In a joint statement, the American Bankers Association (ABA), Housing Policy Council (HPC) and Mortgage Bankers Association (MBA) said the CFPB recently conducted a formal review and evaluation of the mortgage disclosure rules and praised them for improving borrower understanding and facilitating the ability to shop among lenders.
“The industry invested considerable resources to implement these new rules just a decade ago. 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.”
Mortgage lenders also incur costs related to fees and closing costs, the CFPB noted. For example, in recent years the cost of a credit report has risen substantially. Rising costs can prevent lenders from competing for every potential mortgage because these fees drive up the cost of considering an applicant, according to the CFPB.
The CFPB also highlighted title insurance as another major fee paid at closing, saying consumers typically have limited options to shop around for title insurance.
The CFPB’s request for information seeks input from the public, including borrowers and lenders, about how mortgage closing costs may be constraining the mortgage lending market. Specifically, the CFPB asks for information about:
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.
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