Friday’s Government Report Roundup

Mortgage Shopping

The Consumer Financial Protection Bureau has issued a report on Consumers’ Mortgage Shopping Experience:  A First Look at Results from the National Survey of Mortgage Borrowers. The CFPB’s key findings include

a. Almost half of consumers who take out a mortgage for home purchase fail to shop prior to application; that is, they seriously consider only a single lender or mortgage broker before choosing where to apply. The tendency to shop is somewhat higher among first-time homebuyers.

b. The primary source of information relied on by mortgage borrowers is their lender or broker, followed by a real estate agent. Fewer consumers obtain information from outside sources, such as websites, financial and housing counselors, or personal acquaintances (such as friends, relatives, or coworkers).

c. Most consumers report being “very familiar” with the types of mortgages, available interest rates, and the process of taking out a mortgage. Those who are unfamiliar with the mortgage process are less likely to shop and more likely to rely on real estate agents or personal acquaintances.

d. A sizeable share of borrowers report that factors not directly related to mortgage cost, including the lender or broker’s reputation and geographic proximity, are very important in their decision making. Borrowers who express such preferences are much less likely to shop. (10)

I had discussed the CFPB’s new mortgage shopping tool previously. It has been getting bad press from the lending industry which has been calling for its demise. Seems to me the industry is overreacting. Given the lack of comparison shopping that borrowers engage in, a tool that provides them with interest rate comparisons (even if it does not yet have an Annual Percentage Rate comparisons) seems to be a good thing. The tool is in beta, so it is likely to give more and more information over time. My bottom line:  more info is better than less.

Reiss on New Mortgage Tool

Tech News World quoted me in CFPB Shifts Some Power to Mortgage Shoppers. The story reads in part,

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 within 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 improving consumer understanding of the mortgage process.

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This offering is not going to automatically assist all potential homebuyers as they approach the mortgage process, though, said Brooklyn Law School professor David Reiss.

“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
Some lenders benefit from dealing with uneducated consumers and are able to charge higher fees and interest rates as a result, Reiss pointed out.

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.