On March 8, 2024, the CFPB published a blog post highlighting the recent increase in closing costs in residential lending. Therefore, the Bureau is urging consumers to file complaints regarding unresolved mortgage or closing costs or share their experiences with mortgage companies as part of its initiative to analyze how issues like mortgage closing costs affect households and families.
According to the CFPB, closing costs have risen in recent years and these can be seen through total loan costs. In fact, from 2021 to 2022, median total loan costs rose sharply, increasing by 21.8 percent on home purchase loans. A CFPB study found that in 2022, the median amount paid by borrowers was nearly $6,000 in these costs and fees. Lenders offer credits to cover closing costs but may raise mortgage rates. Other sellers pay the closing costs but inflate home prices. This results in borrowers who do not have cash paying extra through higher rates or insurance. According to the CFPB, this can have an outsized impact on borrowers with smaller mortgages, such as lower income borrowers, first-time homebuyers, and borrowers living in Black and Hispanic communities.
The CFPB also sees lack of competition as an additional factor to already rising housing costs. Borrowers are required to pay for many of the costs associated with closing a home loan but cannot pick the provider and do not benefit from the service. An example of these additional costs is a lender’s title insurance, which only protects the lender but is charged against the borrower. Fees for credit reports are another example. As there are only three credit reporting companies nationwide, these companies can charge high fees for credit reports.
The CFPB said that it is working to improve the ability of homeowners to refinance their mortgage when interest rates are favorable, reduce risks for borrowers who fall behind in their mortgage payments, and make it easier for consumers to submit debt collection complaints about rental housing so that the Bureau can address illegal fees. The CFPB is currently working to analyze mortgage closing costs, seek public input and, as necessary, issue rules and guidance to improve competition, choice, and affordability.
Read the CFPB’s blog post here.