[Federal Register Volume 89, Number 110 (Thursday, June 6, 2024)]
[Notices]
[Pages 48400-48402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-12443]
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CONSUMER FINANCIAL PROTECTION BUREAU
[Docket No. CFPB-2024-0021]
Request for Information Regarding Fees Imposed in Residential
Mortgage Transactions
AGENCY: Consumer Financial Protection Bureau.
ACTION: Request for information.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
seeking information and comments from the public related to fees
charged by providers of mortgages and related settlement services.
DATES: Comments must be received on or before August 2, 2024.
ADDRESSES: You may submit information or comments, identified by Docket
No. CFPB-2024-0021, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include
Docket No. CFPB-2024-0021 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake--Residential
Mortgage Fees Assessment, Consumer Financial Protection Bureau, 1700 G
Street NW, Washington, DC 20552.
Instructions: The Bureau encourages the early submission of
comments. All submissions should include document title and docket
number. Please note the number of the topic on which you are commenting
at the top of each response (you do not need to address all topics).
Because paper mail in the Washington, DC area and at the Bureau is
subject to delay, commenters are encouraged to submit comments
electronically. In general, all comments received will be posted
without change to https://www.regulations.gov.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Proprietary information or sensitive personal information, such as
account numbers or Social Security numbers, or names of other
individuals, should not be included. Comments will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
(202) 435-7700 or https://reginquiries.consumerfinance.gov/. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
People rely on mortgage loans to buy their homes, tap home equity
at key life moments, and refinance those loans when interest rates
decline. Mortgages come with many associated fees and costs, referred
to as ``closing costs,'' that are due by the time the loan closes or
when the borrower signs the loan agreement. These closing costs, and
particularly the costs the lender imposes on the borrower as part of
the cost of getting the loan, have recently risen sharply.\1\ From 2021
to 2023, median total loan costs increased by over 36% on home purchase
loans. The median dollar amount paid by borrowers in 2022 was nearly
$6,000 in these costs and fees. This, along with increased home prices
and interest rates, have placed increased pressure on borrowers'
budgets, contributing to a lack of access to credit and decreased home
affordability. Many of these costs are fixed and do not change based on
the size of the loan, resulting in an outsized impact on borrowers with
smaller mortgages, such as lower income or first-time homebuyers.\2\
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\1\ https://www.consumerfinance.gov/about-us/blog/junk-fees-are-driving-up-housing-costs-the-cfpb-wants-to-hear-from-you/.
\2\ https://www.fanniemae.com/research-and-insights/publications/barriers-entry-closing-costs-first-time-and-low-income-homebuyers.
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Lenders are also impacted by rising closing costs. The cost for
credit scores, credit reports, and employment verification, for
example, have all increased markedly over the last few years. Dominant
market players have driven up costs through annual price increases that
significantly outpace inflation, leaving lenders with little choice but
to pay these higher rates. These higher costs are passed on to the
consumer or eat into lenders' bottom lines, in a market where mortgage
originators are already facing financial challenges.\3\ Lenders facing
higher costs for evaluating applicants due to increasing costs for the
basic information in credit reports may rationally choose to evaluate
fewer applicants, potentially resulting in decreased access to credit.
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\3\ Lenders keep losing money on every loan produced, MBA says
National Mortgage News.
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Under Federal law and CFPB regulations,\4\ borrowers receive
disclosures of closing costs through the Loan Estimate and Closing
Disclosure.\5\ These standardized disclosures list out the closing
costs and divide them into loan costs and other costs.\6\ Loan costs
are further divided into required services that the consumer can shop
for (such as lender's title insurance) and required services that
cannot be shopped for (such as credit reporting costs). The largest
disclosed closing costs are origination fees paid to the lender
(including discount points). Title fees (including title insurance,
title search, and settlement fees) are the next largest category of
closing costs (and loan costs).\7\
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\4\ Truth in Lending Act, 15 U.S.C. 1601 et seq., 12 CFR part
1026 (regulation Z).
\5\ https://www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/tila-respa-integrated-disclosures/forms-samples/.
\6\ Other costs include items such as recording fees,
homeowners' insurance, and property taxes.
\7\ https://www.fanniemae.com/research-and-insights/publications/barriers-entry-closing-costs-first-time-and-low-income-homebuyers.
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[[Page 48401]]
Borrowers may encounter dozens of different fees, all of which can
impact the overall cost of a mortgage. The Mortgage Industry Standards
Maintenance Organization (MISMO) lists more than 200 fees that have
been found on closing disclosures.\8\ This complex set of fees may
result in borrowers paying more. A recent study performed by the CFPB
suggests that consumers pay more when prices are separated into
multiple fees.\9\ Other research has demonstrated that mortgage
borrowers underreact to closing cost pricing.\10\ The financial impact
of these closing costs can be amplified when they are financed and
included in the loan amounts.
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\8\ https://www.fanniemae.com/research-and-insights/publications/barriers-entry-closing-costs-first-time-and-low-income-homebuyers.
\9\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-publishes-research-finding-higher-price-complexity-leads-consumers-to-pay-more/.
\10\ https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/non-salient-fees-in-the-mortgage-market.pdf.
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Credit reports are an example of a cost that impacts both lenders
and consumers and which has risen steeply over the last two years.\11\
The credit reporting industry is highly concentrated, with a handful of
dominant players dictating the price of credit reports and scores.
Credit reports play a critical role in the mortgage origination
process. They help lenders price loans, and investors gauge credit
risk. However, lenders have few options due to a lack of
competition.\12\
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\11\ Lenders have reported to CFPB that their cost to obtain
credit reports have increased 25 to 400 percent in recent years.
\12\ FICO is the only credit score used for mortgage
originations, however FHFA announced the GSEs will begin requiring
VantageScore for loans purchased by the GSEs in addition to FICO in
the future. Each credit report for a borrower includes credit
scores. Additionally, there are only three national credit reporting
agencies that collect the data used to produce credit reports.
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Lenders typically pull credit reports at least twice, once at the
initial application stage (a ``soft pull'') and once when they are
finalizing the loan terms (a ``hard pull''). Lenders report that ``soft
pulls,'' often used to prescreen applicants, were significantly
discounted until recently and now cost the same as the ``hard pull.''
Smaller recent increases in the cost of the ``hard pull'' may have an
outsized effect because the Government Sponsored Enterprises (GSEs)
Fannie Mae and Freddie Mac, as well as Federal Housing Administration
(FHA), United States Department of Agriculture (USDA), and Veterans
Affairs (VA), currently require that mortgage lenders use credit
reports from the three national credit report companies, known as
``tri-merge'' reports, for loans that are purchased or insured by
them.\13\ While a consumer can obtain their own consumer report file by
law for free the first time and $15.50 thereafter, a lender pulling
such a report on their behalf can pay twice that.\14\ One midsize
lender reported an increase for the hard-pull tri-merge report from $50
to $110 in the last two years, and a large lender reported an increase
from under $30 to over $60. The CFPB is interested in learning more
about what is driving the increase and variability in the fees lenders
pay for credit reports and the extent to which these costs are passed
on to consumers.
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\13\ FHFA announced that the GSEs will move from a tri-merge
report to a bi-merge report in the future which should foster
competition and in turn, reduce credit report pricing.
\14\ https://www.consumerfinance.gov/ask-cfpb/how-do-i-get-a-
free-copy-of-my-credit-reports-en-5/
#:~:text=By%20law%2C%20a%20credit%20reporting,reports%20at%20no%20cos
t%2C%20online.
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Origination fees are charges from the lender to the borrower for
making the mortgage loan. Mortgage origination services may include
processing the application, underwriting and funding the loan, and
other administrative services. Lenders can vary in which costs they
include in the interest rate or origination charge and which they
charge borrowers separately, further complicating borrowers' ability to
compare costs across loan products. For example, advertisements and
initial price quotes often include discount points in the fine print,
which can make interest rates appear more competitive.\15\
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\15\ https://www.consumerfinance.gov/data-research/research-reports/data-spotlight-trends-in-discount-points-amid-rising-interest-rates/.
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Settlement services are the next largest component of loan costs.
These include fees for title insurance, the preparation and
notarization of the documents, and the physical processing of the
settlement, as well as other fees. Appraisal fees and related valuation
fees, including payments to appraisal management companies, also
contribute to the total loan costs. Many of the fees are charged to
cover the lenders' costs associated with closing a loan.
Title insurance is one of the costliest settlement services at
closing. Title insurance is meant to protect against someone else
laying claim to a borrower's property. In the current market, consumers
are forced to pay for the lender's insurance premiums in a one-time
payment at closing. Borrowers need to purchase a separate owner's
policy to cover losses not covered by the lender's policy. Title
insurance premiums can be significant, and typically range from 0.5%-
1.0% of the purchase price.
II. Request for Information
This request for information seeks input from the public on the
impact closing costs have on borrowers and the mortgage market,
including the degree to which they add overall costs or otherwise cause
borrower harm, and any impact such fees may have on the ability to
purchase a home, anticipate and afford monthly payments, or refinance
an existing mortgage. In addition to hearing from the general public,
the CFPB is particularly interested in hearing from consumers, industry
participants, social services organizations, small business owners,
consumer rights and advocacy organizations, legal aid attorneys,
academics and researchers, and State and local government officials.
The CFPB welcomes stakeholders to submit stories, data, and
information about mortgage closing costs. To assist commenters in
developing responses, the CFPB has crafted the below questions that
commenters may answer. However, the CFPB is interested in receiving any
comments relating to mortgage closing costs.
1. Are there particular fees that are concerning or cause hardships
for consumers?
2. Are there any fees charged that are not or should not be
necessary to close the loan?
3. Provide data or evidence on the degree to which consumers
compare closing costs across lenders.
4. Provide data or evidence on the degree to which consumers shop
for closing costs across settlement providers.
5. How are fees currently set? Who profits from the various fees?
Who benefits from the service provided? What leverage or oversight do
lenders have over third-party costs that are passed onto the consumer?
6. Which closing costs have increased the most over the past
several years? What is the cause of such increases? Do they differ for
purchase or refinance? Please provide data to support if possible.
7. What is driving the recent price increases of credit reports and
credit scores? How are different parts of the credit report chain
(credit score provider, national credit reporting agencies, reseller)
contributing to this increase in costs? What competitive forces are or
can be brought to bear on these costs? What are the impacts on
consumers of the increased costs?
8. Would lenders be more effective at negotiating closing costs
than
[[Page 48402]]
consumers? Are there reports or evidence that are relevant to the
topic?
9. What studies or data are available to measure the potential
impact closing costs may have on overall costs, housing affordability,
access to homeownership, or home equity?
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-12443 Filed 6-5-24; 8:45 am]
BILLING CODE 4810-AM-P