A tool contained within the CFPB online mortgage tool kit will create friction between mortgage customers and banks.
On Jan 13, the bureau announced the launch of “Owning a Home,” a guide for consumers to navigate the process of getting a mortgage. Among the tools offered, the kit includes a “rate checker” which will help “consumers understand what interest rates may be available to them,” the bureau said on its website. The bureau will update rate data with information from large banks, regional banks, and credit unions. The bureau did not say it was collecting rate data from community banks. Data from large banks, regional banks, and credit unions will reflect “about 80 percent of the mortgage market,” the CFPB website said.
The problem is the tool does not include closing costs and other fees. Consumers who use the site will expect a lower price for a mortgage than is likely to be offered by a bank. “It’s not false data but incomplete data,” said Mortgage Bankers Association President and CEO David Stevens, in an interview with Houseingwire. “It sets borrowers up for severe disappointment.”
The guide is a response to a survey conducted jointly with the Federal Housing Finance Agency which found that nearly half of consumers did not shop for rates before applying for a loan. The survey included 2,000 consumers who bought a home in 2013.
The bureau found that 70 percent of the respondents said they depended on their lender or broker “a lot” to do the shopping for them. About 42 percent of borrowers said it was “very important” to have an established banking relationship with their mortgage lender. CFPB Director Richard Cordray’s response to the data was that “lenders and brokers can be valuable resources…But it is worth recognizing that they also have an important personal stake in selling the mortgage. What is best for them is not always going to be best for the consumer.
“It is in the consumer’s best interest,” Cordray continued, “to ask questions and get as much information as possible from several lenders or brokers before making a decision.”
The bureau’s study found that consumers who shopped their mortgage around tended to be more knowledgeable about market rates. The CFPB estimated a borrower with good credit and a down payment of 20 percent could save 0.5 percent or more by shopping around. “For a borrower taking out a 30-year fixed-rate loan for $200,000, getting an interest rate of 4 percent instead of 4.5 percent translates into almost $60 saved per month,” the bureau said on its website.
Given Cordray’s statement that consumers should ask questions, it is interesting that rate checker will increase consumers’ awareness of the fees priced into mortgages. The awareness now will go beyond banks’ disclosures; the bureau actually will quote consumers a price that explicitly leaves the fees out. For consumers who’ve consulted rate checker, bankers will need to be ready for an explicit discussion about the difference between the bank’s price and that quoted at consumerfinance.gov.