The Consumer Financial Protection Bureau (CFPB) has issued a request for information (RFI) on mortgage closing costs, seeking input on how closing costs “may be inflated and constraining” the mortgage lending market.

“The CFPB wants to understand why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered,” the bureau stated in its release. “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 percent. 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.”

The bureau cited examples of closing costs that impact lenders’ cost per loan, including credit scores, credit reports, and employment verification. The CFPB asserted that dominant market players have driven up the costs of these and other products through annual price increases that have significantly outpaced inflation, forcing lenders to pay these higher rates. These increases are then passed on to the consumer or eat into a lender’s bottom line in an already tight market.

“It appears that the CFPB is looking to support an argument that mortgage closing costs, and it specifically calls out title insurance and credit reporting, are not subject to competition and so they’re a potential UDAAP violation,” Garris Horn LLP Managing Partner Richard Horn, formerly CFPB senior counsel, told RESPA News, a The Title Report sister publication, in an email. “This RFI appears to also be attempting to set up a record that disclosure as a tool, especially as a means to enable shopping, is insufficient to protect consumers from these closing costs. 

“Once the idea that disclosure is insufficient is solidified at the CFPB, it can be a problem with respect to other areas of the mortgage market, and for other products, as well,” he added. “Disclosure is the consumer protection tool that is the least disruptive to the marketplace and allows for consumer choice. Industry will need to comment on this RFI.”

Marx Sterbcow, managing attorney for the Sterbcow Law Group, said this RFI officially sets the stage for a “looming” RESPA reform rule.

“They are seeking to force lenders to bundle these legitimate charges into the cost of the borrower’s mortgage loan,” Sterbcow said. “In the end borrowers will have less transparency on why their mortgage rates have increased and higher borrower costs as creditors will just absorb these costs by increasing their mortgage rates.   The CFPB is of the mindset that it’s not what you do – it’s what you get the public to think you do in this illusion of lower borrower costs in the residential mortgage market.”

Comments are due to the CFPB by Aug. 2. Specifically, the CFPB is seeking answers to the following questions:  

• Are there particular fees that are concerning or cause hardships for consumers?
• Are there any fees charged that are not or should not be necessary to close the loan?
• Provide data or evidence on the degree to which consumers compare closing costs across lenders.
• Provide data or evidence on the degree to which consumers shop for closing costs across settlement providers.
• How are fees currently set? Who profits from the various fees? Who benefits from the service provided? What leverage or oversight do lenders have over third-party costs that are passed onto the consumer?
• Which closing costs have increased the most over the past several years? What is the cause of such increases? Do they differ for purchase or refinance? Please provide data to support if possible.
• What is driving the recent price increases of credit reports and credit scores? How are different parts of the credit report chain (credit score provider, national credit reporting agencies, reseller) contributing to this increase in costs? What competitive forces are or can be brought to bear on these costs? What are the impacts on consumers of the increased costs?
• Would lenders be more effective at negotiating closing costs than consumers? Are there reports or evidence that are relevant to the topic?
• What studies or data are available to measure the potential impact closing costs may have on overall costs, housing affordability, access to homeownership, or home equity?

A joint statement was issued by the American Bankers Association, Housing Policy Council, and Mortgage Bankers Association in reaction to the RFI: “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.

“Mortgage lenders fully and transparently disclose costs to every borrower on forms developed and prescribed by Congress in the Dodd-Frank Act and implemented by the CFPB,” they continued. “Many of those disclosed costs, such as title, appraisal and credit reports are required by federal statutes, safety and soundness guidelines, and the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and Fannie Mae and Freddie Mac as a condition of buying and insuring a mortgage. Moreover, the services these fees cover mitigate risk for taxpayers and borrowers alike.

“The CFPB recently concluded a formal review and evaluation of its mortgage disclosure rules and praised them for improving borrower understanding and facilitating the ability to shop among lenders. The industry invested considerable resources to implement these new rules just a decade ago. If the CFPB is now modifying its previous position and is considering changing this complex regulatory disclosure regime, a rule-making process governed by the Administrative Procedure Act – and supported by a robust cost-benefit analysis – is the only appropriate vehicle to initiate that work. Such a rule-making process would allow for the proper level of engagement to produce changes that benefit consumers and do not add compliance costs and lead to negative unintended consequences.”

This is a developing story. Please check back with our sister publications for continuing coverage and reactions from former CFPB counsel and industry leaders.