Biden Administration Targets Mortgage Industry in Crackdown on Rising Closing Costs

The Biden administration has announced an expanded initiative to address what it views as excessive fees within the mortgage industry. The Consumer Financial Protection Bureau (CFPB) highlighted a significant concern regarding the increasing costs of home purchase loans, which surged nearly 22% from 2021 to 2022. This surge resulted in closing costs rising by almost $1,000 to an average of $5,954, marking the largest annual increase since 2018.

Additionally, closing costs for refinancing experienced a 49% increase, reaching an average of $4,979. The impact of these rising costs was particularly pronounced for first-time homebuyers and lower-income borrowers, with nearly 15% of them paying closing costs that exceeded their down payment.

The CFPB has expressed concern that some companies in the mortgage industry might be increasing profits by adding illegal junk fees to homeowner costs. To combat this, the agency is working to ensure that mortgage companies do not tack on unlawful fees.

While the increase in mortgage fees and costs is largely attributed to rising home prices and mortgage rates, there are concerns that some of the rise may be due to misleading junk fees. Discount points and title insurance were singled out as potential areas for unfair or excessive charges.

Experts in the housing industry have expressed mixed reactions to the statement. Some disagree with the inclusion of discount points in the category of junk fees, arguing that they are not necessarily a waste of money.

Over the past year, there has been an increase in homebuyers turning to discount points to reduce their mortgage rate. According to a separate analysis by Freddie Mac, nearly 59% of purchase mortgage borrowers paid discount points last year, up from 31% in 2021 and 54% in 2022.

The Mortgage Bankers Association (MBA) disagrees with the characterization of discount points as junk fees, noting that buyers are aware of and willingly pay for these points at closing. The MBA argues that the fees are clearly disclosed to borrowers.

While discount points are not hidden fees and are required to be disclosed, it is crucial for buyers to fully understand their costs and benefits. With interest rates at 23-year highs, buyers should carefully consider whether purchasing discount points is worthwhile in the long term, especially as builders promote rate-buydowns to attract rate-sensitive buyers.

In conclusion, while some fees in the mortgage industry may be subject to scrutiny, it is important for buyers to be informed about their options and the potential costs involved in obtaining a mortgage.