WASHINGTON–The Consumer Financial Protection Bureau (CFPB) is seeking public input on ways to spur new mortgage products that help households.
Specifically, the CFPB said it is looking for insights on ways to improve mortgage refinances for homeowners who would benefit from refinancing, especially for borrowers with smaller loan balances. The announcement comes at the same time refinancings have declined sharply as rates have increased, but the agency said it sees an opportunity as a result.
The CFPB said it is also seeking public input on ways to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruptions.
According to the Bureau, it will use the information as it considers steps to support household financial stability and address refinance market gaps. The CFPB described the initiative as part of a broader effort to promote competition and innovation in consumer finance markets.
“The mortgage market has not provided products that allow all households to save money by refinancing at a lower interest rate,” said CFPB Director Rohit Chopra in a statement. “We are eager for input on ways that borrowers taking out loans today can refinance to lower rates in the future.”
Great Impact
The Bureau noted mortgage payments are often a household’s single largest expenditure, so the terms of a mortgage greatly affect a household’s financial stability. It cited research by the Federal Reserve Bank of Boston that found that total consumer savings from mortgage refinancing from January 2020 to October 2020, during the refinancing boom, was $5.3 billion annually.
“The typical consumer saved nearly $300 a month ($279) from refinancing during that period. The savings from refinancing a mortgage at a lower rate can translate into increased wealth and equity for borrowers,” the CFPB said. “However, mortgage refinancing can be harder to access for borrowers with smaller loan balances. Black and Hispanic borrowers, who on average have smaller loans, have not participated in recent refinance booms at the same rate as white borrowers.”
Leveraging Rate Declines
Noting refinancing volume has dropped 70% from last year as a result of rising interest rates, the CFPB said new streamlined and automatic refinancing mortgage products could make sure that those buying a home now, or refinancing to cover other needs, are able to benefit from the next interest rate drop.
“Periods of economic turmoil can pose significant challenges for mortgage borrowers. At the height of the COVID-19 pandemic, for example, millions of borrowers lost jobs and income and were at risk of losing their homes,” the CFPB said. “Forbearance protections, passed by Congress via the CARES Act, allowed millions of homeowners with federally-backed mortgages to temporarily stop their monthly mortgage payments. Many servicers of mortgages that did not qualify for CARES Act protections followed the government’s lead and offered similar protections.”
Lessons Learned from Forbearances
The CFPB noted that over the course of the pandemic, 8.2 million borrowers entered a forbearance program, and as of July 2022, 93% have exited. Of those who have exited forbearance, only 5% are delinquent or in active foreclosure.
The CFPB said it is interested in the features of these pandemic-related forbearance programs that should be made more generally available to borrowers, and in particular, if there are ways to automate and streamline the offering of long-term loss mitigation assistance.
The Specifics
Specifically, the CFPB is requesting information about:
- Targeted and streamlined refinance programs
- Targeted and streamlined refinance programs have been used to improve refinancing, typically with lower transaction costs than traditional refinances.
- Innovative refinancing products, such as automatic refinancing
- Automatic forbearance and long-term loss mitigation assistance
- Competitive mortgage markets promote opportunities for wealth creation and promote broader household financial stability.
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