The Consumer Financial Protection Bureau on Tuesday introduced Owning a Home, a set of online tools designed to make it easier for consumers to comparison shop for the best deal in mortgage financing.
With one tool, users can plug in a credit score and ZIP code to get a sense of the current interest rates being offered in a particular area.
There is also a guide that walks consumers through the various loan options on the market, complete with basic definitions of “loan term,” “interest rate type,” and “loan type.”
Another guide describes the closing documents in a typical home purchase.
There is also a checklist that offers suggestions for a smooth closing, including advice on mistakes to avoid.
Other tools will be added to facilitate shopping for a mortgage and improve consumer understanding of the mortgage process.
A Consumer’s Biggest Purchase
The CFPB rolled out these offerings for the simple reason that a home purchase is usually the biggest purchase a consumer will make in a lifetime.
Even a half-percentage point increase in an interest rate could add tens of thousands of dollars to a mortgage over the lifetime of the loan, the bureau noted.
Yet, for some reason — perhaps because the process is complicated and emotionally fraught — consumers don’t shop around but take the first mortgage for which they are approved.
“We shop to find the best price for laptops or appliances, but a report of recent mortgage borrowers found that almost half of us don’t shop around for a mortgage when we buy a home,” said CFPB economist Sergei Kulaev.
This can be foolhardy, he noted. By rolling out the new tools, the bureau hopes to help more consumers compare and contrast mortgagees in order to make sound decisions.
These tools provide consumers with a significant edge, said David Cadden, professor emeritus at Quinnipiac University School of Business.
Instead of shopping around, many consumers just rely upon information provided by lenders or mortgage brokers — “the exact people who have a vested interest in limiting the amount of information available to consumers,” he told CRM Buyer. “This new tool will provide consumers with a competitive advantage.”
Overwhelmed Home Buyers
Brooklyn Law School professor David Reiss said this offering will not automatically assist all potential homebuyers as they approach the mortgage process.
“Shopping for a mortgage is one of the most complex financial transactions that people engage in,” he told CRM Buyer. “Providing additional information should help at least some people, but others are overwhelmed by this type of transaction and will continue to rely on word of mouth, advertising, and preexisting relationships to find a lender.”
Shady Lenders
Reiss pointed out that some lenders benefit from dealing with uneducated consumers and can charge higher fees and interest rates as a result.
The informed consumer is in a much better position to select products and services that provide the greatest value, Cadden observed.
“Informed consumers are, to put it simply, much better shoppers,” he said. “The challenge has always been how to easily acquire information.”
CFPB’s Mandate
The mortgage shopping assistance is a natural extension of the CFPB’s broader mandate to act as an advocate for consumers in financial matters, Reiss noted.
“It clearly complements the other components of that mission,” he said.
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I think this feature could be useful, however, have concerns about two things:
1. Is the CFPB a Mortgage Licensed entity? Only a licensee can quote interest rates.
2. Where is the APR? that must be quoted at same time as rate and must be in same size and font.