CFPB Launches Inquiry Into Mortgage “Junk Fees”

The Consumer Financial Protection Bureau launched a public inquiry into mortgage “junk fees,” which it says hide in closing costs.

The Bureau said closing costs have “risen steeply” and cause undue financial stress on both borrowers, who bear the burden of higher prices, and lenders, who have to pass costs along to borrowers in order to offer competitive mortgages.

“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 anti-competitive fees that harm both homebuyers and lenders.”

Median closing costs in 2022 were $6,000 and are still rising, according to a statement from the Bureau.

“The CFPB wants to understand why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered,” it reads.

Both borrowers and lenders have been asked to comment on the subject, especially regarding which fees are subject to competition, how fees are set, who profits from them, and how fees are changing.

The CFPB is also interested in data on the impact of closing costs on housing affordability, access to homeownership, or home equity.

The American Land Title Association responded that it looks forward to educating the CFPB on the importance of title insurance and settlement services, which are under the microscope.

“The title industry does more than just issue an insurance policy, performing vital work to cure defects in the chain of title, including unpaid taxes, child support, and other liens, as well as combating fraud schemes like wire and deed fraud to protect consumers,” the group said in a statement.

Bob Broeksmit, president and CEO of the Mortgage Bankers Association, has also pushed back on the Bureau’s definition of junk fees.

“The fees mentioned are clearly disclosed to borrowers well before a home purchase on forms developed and prescribed by the Dodd-Frank Act and the CFPB itself,” he wrote.

Other experts responded more positively. The Community Home Lenders of America applauded the CFPB on its decision.

“CHLA commends the CFPB for highlighting third-party mortgage service provider junk fees, which can harm consumers and reduce access to homeownership,” said Scott Olson, CHLA executive director.

“In particular, we are pleased the CFPB focused on two areas of concern to our members, credit scoring and title insurance. Further, it is important that any actions resulting from this RFI do not reduce transparency and should focus on solutions that increase competition like FHFA’s refi title program.”

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