The Consumer Financial Protection Bureau has not confirmed
nor denied reports that it is considering prohibiting mortgage providers from
charging homebuyers for lenders’ title insurance policies.
Following up on a report from Bloomberg, citing “people
familiar with the matter,” Dodd Frank Update’s sister publication
sought clarity from the CFPB on the matter.
Though the bureau declined to comment on a specific proposal
or plan, a spokesperson from the CFPB told RESPA News in an email:
“The CFPB is looking carefully at closing costs and fees consumers may
encounter throughout the mortgage process. We are working with agencies across
the government to foster greater competition in the mortgage market and help
Americans save money when purchasing or refinancing a home.”
Crediting “people familiar with the matter,” Bloomberg’s
report stated the CFPB is still in the early stages and may start with a broad
request for information on closing costs as soon as this month. Any final
proposal wouldn’t be expected until 2025.
“We are also working actively to streamline and simplify the
mortgage servicing rules, to promote greater agility on the part of mortgage
servicers in responding to future economic shocks while also continuing to
ensure they meet their obligations for assisting borrowers promptly and
fairly,” the bureau added.
Dodd Frank Update reached out to the Mortgage Bankers
Association (MBA) to weigh in on the recent reports.
“The CFPB’s attack on the costs for the services required to
successfully underwrite a home loan – title insurance, appraisals, credit
reports, and flood hazard mapping – reveals a fundamental misunderstanding of
how the mortgage market works and a disturbing lack of awareness of existing
regulations, which the bureau itself has promulgated and lauded, that provide
full fee transparency and give consumers the ability to shop,” MBA President
and CEO Bob Broeksmit said in an emailed response. “Our members spent hundreds
of millions of dollars complying with those rules when they were established
less than a decade ago, and another massive and costly revamp is not an
effective solution and only increases costs while creating a false appearance
of addressing housing affordability.”
Garris Horn Co-Managing Partner Richard Horn, who previously
served as senior counsel and special advisor to the CFPB’s Office of
Regulations, offered his take on the reports in a blog post, in which he
recommended that the mortgage industry pay close attention to the CFPB’s
request for information on closing costs. He urged the industry to submit
extremely thorough and strong comments using the CFPB’s own consumer testing
data to demonstrate how banning certain closing costs is unnecessary.
He said a potential ban of this nature would represent “a
cosmic event” for the industry.
“It will be interesting to see if the CFPB rushes the
rulemaking before a change in administration, should it appear that President
[Joe] Biden will lose the upcoming election as November gets closer,” Horn
wrote. “Significantly, the legal authority of the CFPB to ban any charges is
highly suspect, especially in a post-Chevron
world. In addition, the CFPB’s own consumer testing that
supports the TILA-RESPA Integrated Disclosure (TRID) rule, which I led while at
the CFPB, … shows that consumers can readily understand their closing costs,
can use the forms to compare different loan offers, and can identify changes
before closing. This was also the most extensive consumer testing
the CFPB has ever done.”
Based on reports and statements from the bureau, Horn thinks
it is likely the CFPB is coming after lender’s title insurance, discount
points, and credit report fees as it attempts to address the costs of buying a
home. However, he also said it is questionable whether the bureau has the
authority to take such action.
“TILA and RESPA, the two main statutes that govern mortgage
loans, are primarily disclosure statutes,” he explained. “Although they
prohibit certain terms for certain types of loans (e.g., qualified mortgages),
the CFPB would be stretching its authority to use these statutes to ban certain
fees across the board. Congress has not mandated such a ban under these
statutes, so would the CFPB rely on its general rulemaking authority? Of
course, the CFPB could always take the approach of regulating these charges so
heavily that it is too burdensome to charge them, which they have done to some
extent with affiliate charges. Or the CFPB could seek other authority, such as
UDAAP [unfair, deceptive, and abusive acts or practices], to support such a ban
(the CFPB’s own consumer testing on the forms, which I led while at the CFPB,
would appear to make a UDAAP claim difficult).
“But in an expected post-Chevron era, or where the
Major Questions Doctrine sees greater attention and use from the courts, such a
ban may be ripe for challenge by the industry.”