The settlement services industry was buzzing after a report from Bloomberg indicated the Consumer Financial Protection Bureau (CFPB) is considering a ban on charging homebuyers for lenders’ title insurance policies.
The information continues to fuel industry concerns that regulators are targeting settlement services in an attempt to lower housing costs for consumers, potentially increasing lending risks.
Crediting “people familiar with the matter,” Bloomberg’s report stated the CFPB is still in the early stages and may start with a broad request for information on closing costs as soon as this month. Any final proposal wouldn’t be expected until 2025.
Though the bureau declined to comment on a specific proposal or plan, a spokesperson from the CFPB told RESPA News in an email: “The CFPB is looking carefully at closing costs and fees consumers may encounter throughout the mortgage process. We are working with agencies across the government to foster greater competition in the mortgage market and help Americans save money when purchasing or refinancing a home.
“We are also working actively to streamline and simplify the mortgage servicing rules, to promote greater agility on the part of mortgage servicers in responding to future economic shocks while also continuing to ensure they meet their obligations for assisting borrowers promptly and fairly.”
Richard Horn, co-managing partner of Garris Horn and former senior counsel and special advisor to the CFPB’s Office of Regulations, said a ban of this nature would represent “a cosmic event” for the industry.
“It will be interesting to see if the CFPB rushes the rulemaking before a change in administration, should it appear that President [Joe] Biden will lose the upcoming election as November gets closer,” Horn wrote in a blog post reacting to the Bloomberg report. “Significantly, the legal authority of the CFPB to ban any charges is highly suspect, especially in a post-Chevron world. In addition, the CFPB’s own consumer testing that supports the TILA-RESPA Integrated Disclosure (TRID) rule, which I led while at the CFPB, … shows that consumers can readily understand their closing costs, can use the forms to compare different loan offers, and can identify changes before closing. This was also the most extensive consumer testing the CFPB has ever done.”
Horn added that based on reports and statements from the bureau, it is likely the CFPB is coming after lender’s title insurance, discount points, and credit report fees as it attempts to address the costs of buying a home. But, as Horn stated above, it is questionable whether the bureau has the authority to take such action.
“TILA and RESPA, the two main statutes that govern mortgage loans, are primarily disclosure statutes,” he explained. “Although they prohibit certain terms for certain types of loans (e.g., qualified mortgages), the CFPB would be stretching its authority to use these statutes to ban certain fees across the board. Congress has not mandated such a ban under these statutes, so would the CFPB rely on its general rulemaking authority? Of course, the CFPB could always take the approach of regulating these charges so heavily that it is too burdensome to charge them, which they have done to some extent with affiliate charges. Or the CFPB could seek other authority, such as UDAAP [unfair, deceptive, and abusive acts or practices], to support such a ban (the CFPB’s own consumer testing on the forms, which I led while at the CFPB, would appear to make a UDAAP claim difficult).
“But in an expected post-Chevron era, or where the Major Questions Doctrine sees greater attention and use from the courts, such a ban may be ripe for challenge by the industry.”
Horn concluded by recommending the mortgage industry pay close attention to the CFPB’s request for information on closing costs and submit extremely thorough and strong comments using the CFPB’s own consumer testing data to demonstrate how banning certain closing costs is unnecessary.