Investigation Launched into Mortgage Closing Costs by Consumer Federal Protection Bureau

Are you in the market to buy a new home? If so, you may want to pay attention to the recent inquiry launched by the Consumer Federal Protection Bureau into “junk fees in mortgage closing costs.” These additional fees, which include charges for home appraisal, title insurance, and other services, have been on the rise in recent years, adding thousands of dollars to the final cost of purchasing a home.

So, what exactly are these mortgage junk fees that buyers are paying before getting the keys to their new home? According to the CFPB, junk fees are those that far exceed the marginal cost of the service they purport to cover. Some of the fees currently under scrutiny by the CFPB include discount points, credit report fees, home appraisal fees, title insurance fees, and mortgage origination fees.

Discount points, also known as mortgage points, are upfront fees that homebuyers pay to lower the interest rate on their home loan. Credit report fees are charges for conducting a credit report on the borrower, while home appraisal fees involve assessing the fair market value of the property being purchased. Title insurance fees cover the lender in case there’s a lien on the property, and mortgage origination fees are charged for starting a new home loan application.

The increase in these fees in recent years can be attributed to rising inflation and labor costs, as well as the percentage of the transaction price of the house. The CFPB is concerned that these excessive fees may be hindering homebuyers’ ability to make a reasonable down payment on their home, potentially leading to financial difficulties down the line.

The U.S. homeownership rate has fallen slightly in recent years, with the two biggest obstacles being a lack of affordable properties and buyers’ inability to save for a down payment. Excessive mortgage fees only exacerbate these hurdles, making it more difficult for financially constrained individuals to become homeowners.

While the Mortgage Bankers Association acknowledges that lenders are legally required to cover many of these fees, they also emphasize the importance of these services in mitigating risk for taxpayers and borrowers alike. The association believes that any changes to mortgage fees should be made through amending the Dodd-Frank Act, which governs the mortgage process.

In conclusion, the investigation into mortgage junk fees by the CFPB is shedding light on an important issue that affects many homebuyers. By understanding the impact of these fees and potential solutions, we can work towards making homeownership more accessible and affordable for all. Stay tuned for updates on the CFPB’s inquiry and how it may impact the future of home buying.