CUs to CFPB: Don’t Shift Mortgage Fee Burden to Community-Based Lenders
The CFPB wants to understand why closing costs are rising.
In May, the CFPB issued a request for information (RFI) from lenders and the public to understand the fee structure of mortgage transactions and closing costs. In a letter to the Bureau on Friday, officials with America’s Credit Unions said the vast majority of the fees tacked on to these transactions are not controlled by credit unions and instead are decided by third-party vendors. For credit unions, the only fee they control are “origination fees” and even those are set at the lowest possible level, because these fees are not a source of profit.
In a seven-page letter to the CFPB, America’s Credit Unions Regulatory Advocacy Senior Counsel Amanda Smith said, “Credit unions have no influence on these third-party fees and do not have the resources or leverage to negotiate them. We are concerned that shifting the burden of negotiating these fees to mortgage lenders will eliminate the clear disclosures that currently exist, and the fees will be packaged as part of a larger processing fee.”
In May’s RFI, the CFPB specifically asked about the following:
- The extent to which consumers or lenders currently apply competitive pressure on third-party closing costs, and about market barriers that limit competition.
- Who benefits from required services and whether lenders have oversight or leverage over third-party costs that are passed onto consumers.
- Which costs have increased most in recent years and the reasons for such increases, including the rise in cost for credit reports and credit scores.
- Data on the impact of closing costs on housing affordability, access to homeownership or home equity.
In Friday’s letter, Smith said, “Credit unions that make mortgage loans charge an origination fee which covers the cost of underwriting and the time of the employees who put together the loan offer. However, that fee is not a profit source and does not always cover the cost of doing business. Accordingly, although credit unions have control over this origination fee, it is already set at the lowest possible level to cover or almost cover operating expenses.”
If the Bureau wanted to find a way to lower fees, Smith suggested CFPB officials work with lawmakers and the Federal Housing Finance Agency to come up with a solution and not impose more requirements on credit unions to negotiate mortgage closing cost fees.
“The numerous other fees involved in closing costs are not under credit unions’ control,” Smith wrote. “The RFI suggests that mortgage lenders may be able to more effectively negotiate costs with providers such as credit reporting agencies (CRAs). But the lack of competitive options makes it difficult for lenders, especially small community lenders like credit unions, to find the leverage to negotiate prices. A lender can refuse to do business with a company until a discount can be negotiated, but this risks delaying the loan or having to find another servicer. During this time, the lender could lose the consumer’s business to a large bank or other mortgage lender that may be able to process the loan faster.”