by Jeff Sovern
As previously reported in The New York Times and CFPB Monitor, a CFPB report based on data in the National Survey of Mortgage Borrowers has found that nearly half of borrowers don't shop for a mortgage. The new report,taken together with my earlier survey of mortgage brokers finding that consumers virtually never back out of mortgages upon learning their actual rates in the final TILA disclosures and don't use thoses disclosures to comparison shop for mortgages, raises concerns about whether consumers are obtaining the best possible deals on mortgages. As Ryan J. Richardson and Richard J. Andreano, Jr. wrote on the CFPB Monitor "the data and their attendant conclusions suggest that the new TILA/RESPA integrated disclosures, set to be implemented in August 2015, may not, by themselves, sufficiently address consumers’ failure to shop the mortgage market." The Bureau has also created a web tool for checking mortgage rates which may help consumers savvy enough to use it. The Times article notes about that:
Both NAMB and the Mortgage Bankers Association, another professional group, have been critical of the bureau’s focus on interest rates alone. Mr. Councilman called the rate-checking tool “probably one of the worst things you can do for consumers,” because it might cause borrowers to make a decision without considering factors like closing costs and other fees.
In response to the criticism, the bureau released a statement saying there were plans to expand and improve the online tools to “help orient consumers to the overall mortgage process.”
I hope the Bureau is able to do that because I fear that if consumers use the tool, mortgage lenders will respond to the extent they can by increasing fees that are not taken into account in the rate checker and so the tool will not enable consumers to discover the true cost of their loan (think of how airlines now charge fees for such things as boarding earlier, checking bags, extra legroom, and in some cases, using the overhead compartments, and so airline passengers shopping only on the basis of ticket price may not realize the full cost of flying with some carriers). It may be, however, that lenders have only a limited capacity to shift expenses in that way because of regulation of the APR in TILA. It will be interesting to see what additional steps the Bureau takes to protect mortgage borrowers.