The Consumer Financial
Protection Bureau’s (CFPB) blog posts related to its policy initiatives under
Director Rohit Chopra have rubbed many financial professionals the wrong way. The
bureau’s latest post refers to closing costs as “junk fees” that hinder housing
affordability, prompting criticism from the Mortgage Bankers Association
(MBA).
The post describes closing
costs as an “unwelcome surprise” for borrowers and “all too often full of junk
fees,” totaling as much as $6,000 on top of a homebuyer’s downpayment.
“While home prices and interest
rates often command our attention, closing costs also contribute to borrowers’
monthly burdens,” the CFPB wrote. “One measure of closing costs is total loan
costs. Total loan costs include origination fees, appraisal and credit report
fees, title insurance, discount points, and other fees. From 2021 to 2022,
median total loan costs rose sharply, increasing by 21.8 percent on home
purchase loans.”
MBA President and CEO Bob
Broeksmit released a statement disputing the bureau’s position on closing costs
and questioning the agency’s comprehension of mortgage transactions or the
impact of its own disclosure requirements.
Broeksmit focused his comments
on the CFPB’s assertion that borrowers are often taken by suprise by closing
costs, despite regulations imposed by the agency itself designed to ensure all
homebuyers “know before [they] owe,” also known as the TILA-RESPA Integrated
Disclosure (TRID) rule.
“Any suggestion that this
disclosure regime is unfair and rife with junk fees defies the CFPB’s own
analysis,” he said. “In 2015, the industry implemented the bureau’s ‘TRID’
rule, which comprehensively reformed mortgage disclosures. In 2020, the CFPB
issued a report praising its own rule for improving ’consumers’ ability to
locate key information, compare terms and costs between initial disclosures and
final disclosures, and compare terms and costs across mortgage offers.’”
Broeksmit further noted that
the CFPB imposed restrictions on fees lenders are permitted to charge. He also
pointed out that the services covered by such fees are critical to enabling the
mortgage market to function efficiently and are required by federal statutes,
the Federal Housing Administration (FHA), Department of Veterans Affairs (VA)
and Fannie Mae and Freddie Mac as a condition of buying and insuring and guaranteeing
a mortgage.
“The CFPB’s blog post is
baffling and reveals little understanding of how the mortgage market works or
awareness of its own regulations that provide for full fee transparency and
limits on what can be charged,” Broeksmit said. “The fees mentioned are clearly
disclosed to borrowers well before a home purchase on forms developed and
prescribed by the Dodd-Frank Act and the CFPB itself. The illogical use of the
term ‘junk fee’ contradicts even the White House’s own definition, which cites
the lack of disclosure of the fee being charged.”
The bureau does not reference
disclosure requirements or other related regulations in its blog post. However,
it does note that many lenders offer measures to help with affordability, such
as credits to help qualifying borrowers offset closing costs. But the post also
notes that these credits often come with higher interest rates, making borrowers’
monthly payments more expensive. As for instances where sellers pay closing
costs so borrowers don’t have to, the bureau points out that these costs often
are rolled into the price of the home.
“Many of these costs are fixed
and do not fluctuate with interest rates or change based on the size of the
loan,” the bureau wrote. “As a result, they have an outsized impact on
borrowers with smaller mortgages, such as lower-income borrowers, first-time
homebuyers, and borrowers living in Black and Hispanic communities.”
The bureau cited a 2021
study indicating that almost 15 percent of lower-income homebuyers paid more
in closing costs than for their down payment.
“We share the CFPB’s concern
regarding rising costs of the tri-merge credit reports and other credit
reporting products and urged the bureau in late 2023 to examine the drivers of
these cost increases to ensure transparency,” Broeksmit said. “We also
share the administration’s desire to help more Americans become homeowners. The
best way to do so is with policies that build more affordable housing and
encourage a robust housing market.”
Broeksmit concluded his remarks
by reiterating MBA’s commitment to continue working with the Biden
administration on housing policy initiatives, which he expressed in a statement
following the 2024 State of the Union address.
However, he added that MBA
would “vigorously oppose politically motivated proposals that only increase
regulatory costs, reduce competition, or otherwise make it more difficult for
Americans to get the credit necessary to achieve homeownership.”