CFPB Chief Encourages Borrowers to Shop Around

According to a study conducted by the CFPB, nearly half of all consumers do not shop around before purchasing arnmortgage.  “This means,” Richard Cordrayrntold an audience at the Brookings Institute, “theyrnseriously considered only a single lender or broker before making theirrndecision.” </p

In a speech in which he stressed the importance of “Changingrnthe culture how people get their mortgages,” Cordray, Director of the ConsumerrnFinancial Protection Bureau (CFPB), said his agency’s recent National Survey ofrnMortgage Borrowers, conducted in conjunction with the Federal Housing FinancernAgency, also found that most consumers put substantial effort into considering otherrnhousing needs.  “Theyrnroutinely weigh the most basic questions about which house to buy, such asrnwhere they want to live, and how many bedrooms or bathrooms they think theyrnwill need.  But they do not seem to be as careful or as confident inrnweighing the economic aspects of the mortgage decision, such as what downrnpayment they can afford or what mortgage terms fit their unique financialrnneeds.”  The Director said that almostrnnobody buys a house after looking at just one and the same should be true whenrnbuyers consider their mortgage options.  </p

The CFPB survey also found that consumers arerngetting much of their mortgage information from sources that have a vestedrninterest in the outcome.  Seventy percentrnsaid they relied on their lender or broker “a lot” for their loan against thern20 percent who relied on websites and 2 percent on housing counselors.  Cordray said that while lenders and brokersrncan certainly provide important information, consumers should realize thatrntheir business is selling mortgages and that lenders and brokers have differentrnbusiness models and make money in different ways.  Thus it is important for a borrower to getrninformation from several before making a decision.  This does not affect an individual’s abilityrnto qualify for a mortgage, he said.  Itrnis a myth that a lot of lender inquiries to credit bureaus damage a creditrnscore.  </p

An important and interesting finding from thernsurvey Cordray said, was that consumers with more confidence in their knowledgernabout the mortgage process were more likely to shop.  This was especially true when it came torninformation about available interest rates.</p

New mortgage regulations limit various riskyrnproduct features but mortgages can still be hard for consumers to understand,rnhe said.  They need to know about keyrncomponents such as term and type, different interest rate structures,rnconventional versus FHA or VA, and how fees can vary.</p

One effort to change the culture is the newrnmortgage disclosures which go into effect this summer.  These, he said, will help consumersrnunderstand their options, choose the best deal they can, and avoid costlyrnmistakes at the closing table.  CFPB willrnalso be bringing out a new more consumer-friendly edition of the booklet peoplernreceive when they apply for a mortgage.</p

While shopping can occur at different pointsrnin the homebuying process Cordray said consumers are well advised to cast arnwide net early on.  They should research the options first then meet withrnlenders and ask questions about their products.  It is vital thatrnconsumers wait until they receive official loan offers from multiple lendersrnbefore making a final selection.  Also, those official loan offers will soonrnbe presented on the agency’s new disclosure form.  “Finding the best deal depends on comparingrnthe available offers, which may vary based not only on the interest rates butrnalso on other costs and terms,” the director said.</p

Another step in changing the culture, Cordrayrnsaid, is a new interactive toolkit designed to help consumers as they shoprnfor a mortgage.   “Owning a Home” whichrnis now available on the CFPB website, is designed” to give consumers therninformation and confidence they need to get the best deal.”   </p

The toolkit includes a guide to loan optionsrnand a closing checklist, written in plain language. It explains therndifferences between rates types, helps with the calculations about how much loanrnthe borrower can afford, and answers questions that can arise throughout the mortgagernprocess.  </p

The kit also contains a Rate Checker, a toolrncurrently in beta release that helps consumers understand what interest ratesrnmay be available to them.  Borrowers can plug in their credit scores,rnlocation, and other information and the program uses lenders internal raternsheets to inform them of the rates currently being offered to other borrowers likernthem.  Many websites, Corday said, offerrninformation on rates being offered to borrowers that meet their toprncriteria.  When borrowers then go to thernlender and are quoted surprisingly different rates they are left confused andrnuncertain about whether the rates make sense.  </p

Those proprietary websites often requirernpersonal information to provide rate quotes and this information is then usedrnfor marketing purposes.  CFPB’s toolkitrnhas “no hidden agendas” Cordray said, and the agency does not retain anyrnpersonal identifying information.  “Itrnsimply enables consumers to have more of the information they need to be savvyrnshoppers and get the best deals they can.”</p

The toolkit also offers an understanding ofrnhow lower rates translate into dollars saved which again makes it to comparerndifferent interest rates and to see how much they will cost. </p

CFPB, its director said, is working to reducernthe information gap between lenders and consumers.  The former knows the mortgage pricing insidernand out, the latter can often feel it is a mystery.  “We need to change the process from one of ‘gettingrna mortgage’ to one of ‘shopping for a mortgage’ Consumers have much more powerrnthan they may realize.  They can use that power to take control of theirrnfinancial outcomes.”

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