Consumers Don't Shop for Mortgages and the CFPB Intends to Change That
Richard Cordray, the director of the Consumer Financial Protection Bureau, gave a short speech today at the Brookings Institution. In his speech, he outlined several steps the CFPB is taking to help fix the mortgage market. In his view, one of the chief problems with the mortgage market is that consumers do not shop around for mortgages the same way they shop for other products, including houses. According to a recent CFPB study, "almost half of all borrowers seriously consider only a single lender or broker before deciding where to apply."
The CFPB's aims to solve this problem with some new tools. More after the break.
The CFPB's primary solution, as described today, are some new tools on its website. They are generally aimed at improving the amount and quality of information possessed by potential mortgagees. These tools include (i) a mortgage interest rate calculator, (ii) general information about different types of loan products and closing documents, and (iii) a plain language checklist for what to expect at closing and how to avoid common mistakes. In his remarks, Director Cordray focused on the rate calculator, claiming that it will offer more realistic rates for consumers for at least three reasons. First, the calculator draws from mortgage lenders' own internal rate sheets so consumers will have access to the same information that lenders have about the consumers. Second, it allows consumers to input a larger number of variables, including their credit scores, than other calculators. Finally, the CFPB's information is offered free from any agenda other than protecting consumers when they make mortgage decisions.
Although these strike me as modest steps toward improving the mortgage market, I think the focus on educating consumers with easy-to-use tools and plain-language checklists is a smart one. This is particularly true because the CFPB's own research found that borrowers "were almost twice as likely" to compare offers from multiple mortgage lenders when they were more confident about their knowledge of currently available interest rates. In the future, if my family decides to purchase our first house, we will probably consult these new tools to help understand our options before we talk with mortgage lenders. How about you?
Consumers can't shop loans because it would screw up the banks' data cloud system. This just goes to show you how out of touch the government is with the patented mortgage loan process. The 1003 loan application information goes into a data bank available to all of the users to bid on loans. The information, as well as all other credit and personal information available is collected to construct a personal profile of what you are worth and how much you [can't] afford.
Remember when mortgage brokers and banks told you not to shop the loans because it would lower your credit score? Now you know why - it would confuse their algorithm system.
Posted by: DeadlyClear | January 13, 2015 at 08:35 PM
That's exactly what we were told in 2009 when we bought our home, but for completely different reasons. As it turns out, one lender was allowing $55,000.00 in Grant money that was allocated to us; the other lender would not allow it. As it so happened, the appraisal that we paid for was approx.60% under the asking price. Since we were in a time crunch the non-profit, whom we bought it from, had no choice either.
Posted by: KAREN WILLIS MONTEZ | January 20, 2015 at 01:22 AM
Thank you for sharing your story. A $55,000 difference sounds like a great reason to shop around, if time allows.
Posted by: Matthew Bruckner | January 20, 2015 at 12:02 PM
In order for this to actually work, borrowers need to stop being dinged just for credit pulls. DC and Karen illustrate sides of the "why it can't" and "why it MUST" happen coins. $55k IS a great reason to shop around. But not if you're damaging yourself AND costing yourself money out of pocket (new appraisals, etc.) every time you do.
Posted by: Mike Dillon | January 22, 2015 at 08:41 AM
Thanks for your comment, Mike. In an effort to keep the initial post pithy, I didn't mention this issue originally. However, Cordray did discuss the very issue you raised.
He suggested, and other sources agree, that multiple inquiries generated when rate-shopping for certain loans (such as a mortgage) are consolidated by credit scoring models if they all occur within a certain window. In other words, if borrowers shop aggressively in a short enough window, that borrower's credit score will not be affected because of multiple requests.
Here's the CFPB's webpage that addresses this issue: http://www.consumerfinance.gov/askcfpb/763/can-shopping-loan-have-effect-my-credit.html
Posted by: Matthew Bruckner | January 22, 2015 at 07:17 PM