CFPB Investigating Reasons Behind Rising Closing Costs
Written By: Joel Palmer, Op-Ed Writer
The Consumer Financial Protection Bureau (CFPB) is investigating what it terms “junk fees” related to mortgage closing costs.
CFPB said its inquiry is motivated by understanding “why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered.”
A CFPB analysis showed median total loan costs for home mortgages increased by over 36 percent between 2021 and 2023. In 2022, median closing costs were $6,000, the bureau found.
“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”
In its investigation announcement, CFPB also pointed out that mortgage lenders are paying “substantially” increasing costs for credit reports has risen substantially. The bureau said rising fees drive up the cost of the application process and can prevent lenders from competing for every potential mortgage.
Title insurance is another closing fee CFPB said is potentially problematic for borrowers.
The bureau’s investigation calls for the public, including borrowers and lenders, to provide information about how “mortgage closing costs may be inflated and constraining the mortgage lending market.”
Specifically, the CFPB is asking 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.
Mortgage underwriters and processors, and other interested parties, can submit public comments at www.regulations.gov, or by email at 024-RFI-ResidentialMortgageFees@CFPB.gov. Include Docket No. CFPB-2024-0021 in the subject line of the message.
CFPB’s announcement comes as data continues to show the struggle many consumers have in the current housing and mortgage markets.
Redfin reported last week one in six (16.6 percent) U.S. renters stayed in their home for 10 years or more in 2022, up from 13.9 percent a decade earlier.
Another 16.4 percent of renters had lived in the same home for five to nine years in 2022, up from 14 percent a decade earlier.
Redfin said the combination of soaring home prices, rising mortgage rates, and higher rents makes it more challenging for potential buyers to save enough for downpayments and closing costs.
“While the fact that people are staying longer in their rentals may mean they can’t afford to buy a home in today’s market, staying put also means they’re saving some money that could eventually go toward a down payment if they do have a goal of homeownership,” said Redfin Senior Economist Sheharyar Bokhari.
Interestingly, the majority of mortgage borrowers are not shopping around for the best deal, according to a LendingTree survey. The study found 54 percent of those with a mortgage for their most recent home only solicited one mortgage offer.
The survey found that 28 percent who only got one offer felt they received the best rate from the first lender. Another 20 percent said they wanted to use a lender who had a relationship with their real estate agent. The rush to get financing influenced 14 percent of respondents, while 13 percent said they wanted to work with a familiar lender.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
