Real Estate

Biden's CFPB Targets Rising Mortgage Junk Fees Amid Industry Debate

Biden's CFPB targets rising mortgage "junk fees," with closing costs up nearly 22% to $5,954, sparking industry debate.

By Tal Alexander

4/4, 05:52 EDT
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Key Takeaway

  • CFPB targets mortgage industry's rising closing costs, which surged 22% for home purchases and 49% for refinances in a year.
  • Debate over "junk fees" includes discount points and title insurance; industry experts defend transparency and value of fees.
  • CFPB's crackdown on undisclosed fees highlighted by lawsuit against Ocwen Loan Servicing for unauthorized "convenience fees."

Expanding the Crackdown on Mortgage Junk Fees

The Biden administration, through the Consumer Financial Protection Bureau (CFPB), is intensifying its efforts to address the issue of "junk fees" in the mortgage industry, a move that has sparked a significant amount of debate among industry experts and stakeholders. According to the CFPB, the costs associated with home purchase loans have seen a nearly 22% increase from 2021 to 2022, with closing costs rising by almost $1,000 to an average of $5,954. This surge in costs, particularly for first-time and lower-income homebuyers, has raised concerns about the proliferation of unnecessary and potentially misleading fees that could be driving up expenses for consumers.

The Impact of Rising Mortgage Costs

The sharp increase in closing costs, including origination fees, appraisal fees, and title insurance, among others, has had a disproportionate impact on first-time homebuyers and those with lower incomes. Nearly 15% of these borrowers found themselves paying closing costs that exceeded their down payment, highlighting the financial strain imposed by these fees. The CFPB's focus on discount points and title insurance as potential sources of excessive charges underscores the need for greater transparency and fairness in the mortgage process.

Industry Reactions and the Debate Over "Junk Fees"

The CFPB's stance on junk fees has elicited mixed reactions from the mortgage industry. Some experts argue that discount points, which have been increasingly utilized by borrowers to lower their mortgage rates, should not be classified as junk fees. However, the negligible difference in rates for borrowers who paid for discount points raises questions about their value. The Mortgage Bankers Association (MBA) has criticized the CFPB's approach, emphasizing that fees such as discount points are disclosed to borrowers and arguing against the characterization of these fees as "junk."

The Broader Implications of the CFPB's Crackdown

The CFPB's efforts to combat junk fees in the mortgage industry are part of a broader initiative to ensure fairness and transparency in consumer financial markets. This initiative includes stepping into lawsuits, such as Glover and Booze v. Ocwen Loan Servicing, LLC, to challenge convenience fees charged for online or phone payments. The agency's actions signal a commitment to protecting consumers from unnecessary and potentially exploitative fees, but they also raise concerns among industry stakeholders about the potential impact on mortgage costs and the availability of credit.

A Call for Transparency and Consumer Education

As the debate over junk fees continues, it is clear that transparency and consumer education are critical. Borrowers should be fully informed about the fees they are paying and the long-term implications of their choices, such as whether to purchase discount points. The CFPB's focus on ensuring that fees are disclosed and justified is a step in the right direction, but it also highlights the need for ongoing dialogue and collaboration between regulators, industry participants, and consumers to find balanced solutions that protect borrowers without unduly restricting access to mortgage credit.

Street Views

  • Bob Broeksmit, Mortgage Bankers Association (Neutral on the concept of discount points as junk fees):

    "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. The fees mentioned are clearly disclosed to borrowers."