Thank you to the Domestic Policy Council and the National Economic Council for meeting us today.
Saving for a down payment is a big hurdle when buying a home, and for many families, the process takes years. This morning, the Consumer Financial Protection Bureau launched an investigation into junk fees that drain down payments and raise the cost of closing a mortgage for borrowers.
In a truly competitive market, people can clearly compare the total price and key features in advance to select the best option. However, junk tariffs have been plaguing the economy for years, raising the prices we pay for all kinds of products and services. Sometimes junk fees are charged for bogus or worthless services that the customer never wanted. In other cases, junk fees are unavoidable charges imposed on captive customers who have no meaningful other option. Many junk rates are wildly inflated relative to the provider's cost. Junk fees aren't just an inconvenience or annoyance. They represent what happens when companies exploit their customers, instead of competing for them.
Closing costs are the various fees added to a mortgage transaction that are due at the time the loan closes or when the borrower signs the loan contract. They include charges for things like credit reports and scores, title search and title insurance, and other settlement fees.
This wide variety of rates, which can have more than 200 different names, can add up. These costs have increased dramatically recently: From 2021 to 2023, average total loan costs increased by more than 36 percent on home purchase loans.
While some of these fees may provide legitimate service at a fair price, many of these closing costs may not be subject to fair competition. These fees don't just affect consumers who face higher monthly mortgage costs and exhausted down payments. Mortgage lenders themselves are fighting junk fees, and when the costs of things like credit reports rise, it becomes more expensive for lenders to even consider an applicant.
There is a lot of concern from lenders and borrowers about junk credit report fees. Three conglomerates (Equifax, Experian and TransUnion) dominate the credit reporting market. And in turn, they rely on another company, Fair Isaac Corporation, for their proprietary FICO score.
Mortgage lenders have told the CFPB that the costs of credit reporting and ratings have increased, sometimes as much as 400%, since 2022. But as investors require the FICO score to analyze pools of mortgages and mortgage-backed securities, lenders Lenders are a captive customer base. They have no choice but to pay the fees if they hope to be able to sell the loan on the secondary market and continue making more loans.
The Fair Credit Reporting Act limits the fees charged to consumers for credit files to $15.50, but lenders pay much more. In certain circumstances, the CFPB has the authority to set a โfair and reasonableโ price for some of these reports.
Title insurance fees are a major closing expense for homeowners, often costing thousands of dollars. Title insurance is an unusual product, typically paid for with a large fee rather than regular monthly premiums. Many mortgage lenders require the borrower to purchase lender's title insurance, which protects the lender, not the borrower, against problems with the title of the property.
Home buyers often have few options when it comes to title insurance. And in many cases, the price borrowers are charged for the lender's title insurance is significantly greater than the risk.
Finding ways to reduce these and other costs will help more Americans cross the finish line when it comes to buying a home.
As many of you know, the CFPB has been focused on reining in junk fees across the board. Our work is saving Americans billions of dollars. We are pleased to build on this work and join this multi-agency effort to combat junk rates in housing.
Too many Americans already face sky-high housing costs due to recent increases in interest rates and home prices. Junk fees on closing costs can add substantial out-of-pocket expenses for households. By lowering your down payments, you also further increase your monthly mortgage costs.
We want to hear from homebuyers and homeowners about how these fees are putting even more pressure on their tight budgets. And we want lenders to better understand how certain costs, such as those associated with evaluating applicants' creditworthiness, may impact their ability to offer loans to some potential borrowers. We especially want to hear from mortgage lenders, who are already prohibited from inflating rates and paying kickbacks, about ways to stop the leak of down payments.
The CFPB administers many laws and regulations related to mortgage lending and real estate settlements, including the Truth in Lending Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act. Our research will help inform how we update rules, develop guidance, and conduct other policy initiatives with other federal and state agencies. We look forward to reviewing the public comments we received as part of this investigation.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information visit www.consumerfinance.gov.
