Rising fees are draining down payments, pushing homeownership out of reach
The Consumer Financial Protection Bureau (CFPB) today launched a public inquiry into junk fees that are increasing mortgage closing costs. The CFPB wants to understand why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered. 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%. 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.
“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”
People rely on mortgage loans to buy their homes and to access home equity. When people purchase a home with a mortgage, they pay a number of fees, such as charges for credit reporting and title insurance. Even if disclosed, borrowers are compelled to pay the fees and may have no control over cost. In 2022, median closing costs were $6,000, and these fees can quickly erode home equity and undercut homeownership.
Mortgage lenders also pay a price when it comes to junk fees and excessive closing costs. For example, in recent years the cost of a credit report has risen substantially. Rising costs can prevent lenders from competing for every potential mortgage because these fees drive up the cost of considering an applicant.
Title insurance is another major fee paid at closing. Most commonly, lender’s title insurance is paid by the borrower to protect the lender against problems with the property. Consumers typically have limited options to shop around for title insurance.
The CFPB’s request for information seeks input from the public, including borrowers and lenders, about how mortgage closing costs may be inflated and constraining the mortgage lending market. Specifically, the CFPB asks for information about:
- Which fees are subject to competition: The CFPB is interested in the extent to which consumers or lenders currently apply competitive pressure on third-party closing costs. The CFPB also wants to learn about market barriers that limit competition.
- How fees are set and who profits from them: The CFPB wants to learn about who benefits from required services and whether lenders have oversight or leverage over third-party costs that are passed onto consumers.
- How fees are changing and how they affect consumers: The CFPB wants information about which costs have increased most in recent years and the reasons for such increases, including the rise in cost for credit reports and credit scores. The CFPB is also interested in data on the impact of closing costs on housing affordability, access to homeownership, or home equity.
The CFPB encourages comments and data from the public and all interested stakeholders. Comments must be received within 60 days of the request for information being published in the Federal Register.
The CFPB administers many laws and regulations related to mortgage lending and real estate settlement, including the Truth in Lending Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act. The findings from this inquiry will help inform rulemaking, guidance, and other policy initiatives.
Read today’s Request for Information Regarding Fees Imposed in Residential Mortgage Transactions.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).