Mortgage Industry Leaders React To Crackdowns On “Junk Fees”

By ERIN FLYNN JAY

As the Biden administration’s war on “junk fees” continues, mortgage industry leaders are saying closing costs are not the source of home affordability challenges.

In March, leaders at the Consumer Financial Protection Bureau asked for input in a blog post aimed at challenging these costs.

“Families who manage to save up for a down payment and get approved for a mortgage often get an unwelcome surprise: closing costs that all too often are full of junk fees,” the post by Julie Margetta Morgan said.

Closing costs are paid on the day a buyer finalizes the purchase of their home. They include title insurance, credit report costs, appraisal fees, origination fees, and more.

According to the CFPB, the median amount paid by borrowers was nearly $6,000 in 2022.

“In the coming months, the CFPB will continue working to analyze mortgage closing costs, seek public input and, as necessary, issue rules and guidance to improve competition, choice, and affordability,” the blog post said. “We will also continue using our supervision and enforcement tools to make it safer for people to purchase homes and to hold companies accountable when they violate the law. ”

Bob Broeksmit, president and CEO of the Mortgage Bankers Association, reacted to the post by saying it shows a lack of understanding of how the mortgage market works and how regulations require full fee transparency.

“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. The illogical use of the term ’junk fee’ contradicts even the White House’s own definition, which cites the lack of disclosure of the fee being charged,” Broeksmit said in a statement. “Any suggestion that this disclosure regime is unfair and rife with junk fees defies the CFPB’s own analysis.”

Industry leaders say closing costs are only the tip of the iceberg when it comes to housing affordability issues.

Robert Salotto, president of First Financial Lending in Cherry Hill, New Jersey, said excessive “junk fees” are not as big a problem as the CFPB is making them out to be.

He said interest rates have a direct impact on housing affordability, not the appraisal cost going up from $300 to $525 over 10 years.

“Two years ago, rates were under 3% — so let’s say a $400,000 mortgage at 3% equals $1,686 principle and interest. Now today, thanks to inflation and our corrupt government, rates are around 7.25% — so the same $400,000 mortgage is now $2,728, so $1,041 higher.”

Salotto said some fees, like lender title insurance, are regulated by the state and based on the loan’s size.

Regarding discount points, which the CFPB said they are paying particular attention to, Salotto said there are so many ways to view this – but he doesn’t charge these fees.

“A discount point goes to buy down the rate – clients typically chose to pay them or not. Now some correspondent lenders may and do charge on every file, but I don’t,” Salotto said.

When it comes to the costs of credit reports, Salotto said the increases in prices have hurt lenders more than borrowers.

“Now credit report fees have drastically gone up within the last year – joint pull is nearly $80 – used to be $45 – and no one can explain the rapid jump in price,” he said. “These increased costs hurt mortgage companies running 100 reports a month – think about pulling credit $80 each times 100 reports a month – and larger companies pull way more!”

The CFPB has been hammering on the issue of “junk fees” in the mortgage industry recently.

Last week, the CFPB took aim at “junk fees” in mortgage servicing, releasing supervisory highlights addressing prohibited property inspection fees, deceptive notices sent to homeowners, and violations of loss mitigation rules that help struggling borrowers stay in their homes.

On Tuesday, leaders issued a new report suggesting consumers pay more for products with complex pricing structures.

“The research has implications for understanding how junk fees impede fair and competitive pricing in markets like auto loans or mortgages, where consumers have to evaluate extended warranties, add-ons, closing costs, and a wide variety of other fees instead of an all-inclusive price,” a press release said.

When it comes to mortgages, leaders said mortgage pricing can be complex due to a wide range of interest rates, fees, and terms that vary based on factors such as loan type, credit score, or down payment.

“For example, adjustable-rate mortgages can have pricing structures that include initial fixed-rate periods, adjustment intervals, caps on interest rate changes, and margin rates. And consumers often pay a large number of separate closing costs to obtain a mortgage,” the press release said.

Editor Kimberley Haas contributed to this report.

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