Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra addressed the state of the mortgage market, focusing on the impact of high interest rates on homeowners and the obstacles they face when refinancing during a speech at the National Housing Conference.
Chopra pointed out that mortgage rates peaked at 7.79 percent in October 2023, up from a historic low of 2.65 percent in January 2021. The rise in rates has sharply reduced refinancing activity, he said, noting that refinancing volumes in the first half of 2024 were the lowest in nearly 30 years. For homeowners, the effect has been significant. A borrower with a $400,000 mortgage now pays $877 more per month compared to January 2021.
Although rates are expected to decline, the scope of their impact remains uncertain, he noted.
“Millions of borrowers could benefit from refinancing,” Chopra said. He added that further reductions in rates would expand the pool of eligible homeowners, potentially leading to billions in economic activity. However, he expressed concern that many homeowners, particularly minority borrowers, may be unable to capitalize on lower rates due to inequities in the market.
Chopra also discussed the challenges of refinancing, particularly high closing costs and the complexity of the process. These costs often deter borrowers from refinancing, even when it would save them money. Fees for credit reports, FICO scores, and employment verification are often inflated due to a lack of competition, he said. Title insurance costs for new lender policies during refinancing also add to the financial burden.
“Many borrowers looking to refinance are particularly puzzled when it comes to purchasing a new title insurance policy for their lender that sometimes costs thousands of dollars,” Chopra said. “Even though these borrowers typically do not lose their owner’s title insurance if they purchased a policy when they bought their home, the policy does not carry over to a new lender when they refinance. The CFPB believes that this and other closing costs are harmful to both lenders and borrowers, given how they reduce the pool of mortgages that can benefit from refinancing.”
The CFPB is also closely monitoring the use of new financial technology, including solutions, artificial intelligence, to lower refinancing costs. He also revealed that the bureau plans to release a new rule related to open banking initiatives in October.
“Next month, I expect we will finalize our initial rule on Personal Financial Data Rights, under Sec. 1033 of the Consumer Financial Protection Act,” Chopra said. “This initial rule will empower people to permission their personal financial data to lenders in ways that will reduce the costs of underwriting over the long term. Mortgage lenders would also have greater ability to use a family’s cash flow in the underwriting process, since borrowers could more easily share data on their income and expenses.”
He added that he expects there to be additional rules following this initial one implementing Sec. 1033.
To address these challenges, Chopra said the CFPB is taking several actions, including finalizing a rule on personal financial data rights. The rule would allow borrowers to share financial data more easily with lenders, reducing the cost of underwriting. The agency is also looking for ways to increase competition in closing costs.
With the Federal Reserve’s Federal Open Market Committee meeting approaching, Chopra said the financial sector is watching for signs of rate cuts. He raised concerns about whether homeowners with high-rate mortgages will be able to take advantage of any potential decreases.
“Ensuring that a broad swath of homeowners can benefit from falling rates will be critical,” Chopra said.
Chopra stressed that the CFPB remains focused on promoting equitable access to refinancing, with potential regulatory changes aimed at improving outcomes for homeowners and supporting economic growth.