CFPB launches inquiry into junk fees in mortgage closing costs

The Consumer Financial Protection Bureau (CFPB) has initiated a public inquiry into junk fees found in mortgage closing costs.

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The CFPB is seeking to find out why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered.

When people purchase a home with a mortgage, they pay a number of fees, such as charges for credit reporting and title insurance. In 2022, the median closing costs of these fees were $6,000, and these fees can quickly erode home equity and undercut homeownership.

Further, the closing costs that borrowers pay in connection with a mortgage have risen steeply in recent years, according to a CFPB analysis. From 2021 to 2023, median total loan costs for home mortgages increased by over 36 percent. The fees borrowers must pay at closing can strain household budgets and limit the ability of lenders to offer competitive mortgages.

“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” CFPB Director Rohit Chopra said. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”

The CFPB points out that mortgage lenders also pay a price when it comes to junk fees and excessive closing costs. For example, rising costs can prevent lenders from competing for every potential mortgage because these fees drive up the cost of considering an applicant.

The CFPB is seeking input from the public, including borrowers and lenders, about how mortgage closing costs may be inflated and constraining the mortgage lending market. Specifically, the CFPB is looking for information about:

• Which fees are subject to competition: The CFPB is interested in the extent to which consumers or lenders currently apply competitive pressure on third-party closing costs. The CFPB also wants to learn about market barriers that limit competition;
• How fees are set and who profits from them: The CFPB wants to learn about who benefits from required services and whether lenders have oversight or leverage over third-party costs that are passed onto consumers; and
• How fees are changing and how they affect consumers: The CFPB wants information about which costs have increased most in recent years and the reasons for such increases, including the rise in cost for credit reports and credit scores. The CFPB is also interested in data on the impact of closing costs on housing affordability, access to homeownership, or home equity.

Comments must be received within 60 days of the request for information being published in the Federal Register.

The American Bankers Association (ABA), Housing Policy Council (HPC) and Mortgage Bankers Association (MBA) have already weighed in on the matter, saying the inquiry makes sense.

“Given the significant home-price appreciation and swift inflation that consumers have encountered in recent years, a discussion about policies that address affordability burdens while maintaining healthy and competitive mortgage markets makes good sense,” MBA and ABA officials said.