The Consumer Financial Protection Bureau (CFPB) has launched an inquiry into “junk fees” in mortgage closing costs, which have increased significantly in recent years. These fees, which include discount points, credit report fees, home appraisal fees, title insurance fees, and mortgage origination fees, can add thousands of dollars to the final cost of buying a home. The CFPB is particularly interested in these five types of fees due to their recent price spikes.
Discount points are upfront fees paid by homebuyers to lower the interest rate on their home loan. Credit report fees are charged for conducting a credit report on the borrower, while home appraisal fees are for valuing the property being purchased. Title insurance fees cover the lender in case of a lien on the property. Mortgage origination fees, typically between 0.5% and 1% of the home’s cost, are charged for starting a new loan application.
The increase in fees is due to rising inflation and labor costs for home appraisal and credit report fees, while mortgage origination fees are tied to housing prices. The CFPB is concerned that excessive closing fees may impact homebuyers’ ability to make a down payment and lead to mortgage payment delinquencies. The agency is investigating whether fees have climbed too high and exploring possible solutions to lower them, such as new regulations or shifting the responsibility of paying fees away from homebuyers.
Costly mortgage fees are contributing to a decline in homeownership rates in the U.S. Lack of affordable properties and saving for a down payment are the main obstacles to increasing homeownership rates. Junk fees make it difficult for financially constrained individuals to become homeowners, as it is often cheaper to rent than buy due to high closing costs. The Mortgage Bankers Association argues that lenders are legally required to cover certain fees, and these fees mitigate risk for taxpayers and borrowers.
The MBA states that lenders have worked with the CFPB in the past to ensure clear disclosure of mortgage fees, as required by the Dodd-Frank Act. Any changes to mortgage fee regulations would require amending the Dodd-Frank Act. The CFPB is collecting information from homebuyers to determine the next steps in addressing excessive mortgage fees. The concern is that these fees are hindering individuals from entering homeownership and may be contributing to the overall decline in the homeownership rate in the U.S.
