WASHINGTON — The Consumer Financial Protection Bureau (CFPB) has launched what it is calling a “public inquiry” into junk fees it said are increasing mortgage closing costs.
The CFPB said it wants to understand why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered.
According to a CFPB analysis, the closing costs borrowers pay in connection with a mortgage have risen steeply in recent years.
“From 2021 to 2023, median total loan costs for home mortgages increased by over 36%,” the CFPB said. “The unavoidable fees borrowers must pay at closing can strain household budgets and families’ ability to afford a down payment. The fees may also limit the ability of lenders to offer competitive mortgages because they have to absorb the higher costs or pass them on to borrowers.”
According to the Bureau, “When people purchase a home with a mortgage, they pay a number of fees, such as charges for credit reporting and title insurance. Even if disclosed, borrowers are compelled to pay the fees and may have no control over cost. In 2022, median closing costs were $6,000, and these fees can quickly erode home equity and undercut homeownership.”
Costs to Lenders
The CFPB further said mortgage lenders also pay a price when it comes to junk fees and excessive closing costs.
“For example, in recent years the cost of a credit report has risen substantially,” the CFPB said. “Rising costs can prevent lenders from competing for every potential mortgage because these fees drive up the cost of considering an applicant. Title insurance is another major fee paid at closing. Most commonly, lender’s title insurance is paid by the borrower to protect the lender against problems with the property. Consumers typically have limited options to shop around for title insurance.”
Information Being Sought
The CFPB said it 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 said it is seeking information on:
- 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.”
- 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.