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Former CFPB attorney reacts to possible ban on lender title insurance fees

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Consumer Protection
Tuesday, April 16, 2024

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.”

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