CFPB Report Explores Consumers’ Mortgage Shopping Experience

In a report released on January 13, 2015, the Consumer Financial Protection Bureau announced that nearly half of consumers do not shop among multiple lenders before applying for a mortgage loan. Even fewer—about one of every four—submit multiple applications to gauge the best deal, the Bureau says.

The report is the first to harness data gathered by the National Survey of Mortgage Borrowers, an ongoing research effort funded jointly by the Bureau and the Federal Housing Finance Agency (FHFA). Its findings rely on responses gathered from roughly 1,900 consumers who took out home-purchase mortgages in 2013.

Among its salient points, the report concludes that the vast majority of consumers—about 70 percent—gather information about mortgage loans primarily from lenders and brokers. Not surprisingly, the report expresses concern that these parties may not offer the most objective information, given their interest in closing the transaction. In conjunction with the report’s publication, the CFPB announced steps that aim to provide another avenue for consumers to gather information about available mortgage products. These steps are discussed below.

The report also concludes that consumers who identify as “unfamiliar” with the basic features of mortgage loans are less likely to shop around for the best deal, and that factors not related to cost, such as a lender’s reputation and proximity of a branch office, are important to a significant minority of mortgage borrowers.

Though likely no surprise to the industry, the data and its attendant conclusions suggest that the new TILA/RESPA integrated disclosures, set to be implemented in August 2015, may not, by themselves, sufficiently address consumers’ failure to shop the mortgage market. Federal regulatory efforts traditionally have focused on encouraging consumers to shop for mortgage loans through an easier, more streamlined loan application process. The reality emphasized by the report, however, is that to the extent a consumer shops around for a mortgage, the shopping typically ends when the consumer submits a loan application. Thus, prior efforts have targeted the wrong point in the process. The report demonstrates that the CFPB is attempting to address this issue.

Alongside the report, the CFPB has rolled out a new landing page called the “Owning a Home Toolkit” within its existing website. The toolkit includes fact sheets to get potential homebuyers started shopping for a mortgage loan and checklists to prepare borrowers for a closing. The toolkit’s brass ring, though, is its “Rate Checker” tool, which the Bureau disclaims is still in beta testing. The Rate Checker allows a consumer to enter information about his or her location, credit profile, desired loan amount, and collateral value. Pairing this information with daily updated data from financial institutions (via a private research firm), the Rate Checker displays the prevailing interest rates for which the consumer may qualify, as well as the number of financial institutions offering those rates to individuals with the consumer’s profile. Though wildly simplified and, at this point, a little clunky, this tool could provide potential borrowers with useful information about typical products in the mortgage market, and, toward the Bureau’s goal, it could help consumers better assess terms offered once they apply for a loan. The concern, of course, is that consumers may unduly rely on information produced by the tool, which does not account for the full scope of consumers’ risk profiles.

At the end of the report, the CFPB notes that the current analysis did not evaluate the extent to which more shopping by consumers improves mortgage outcomes, such as better loan terms and fewer delinquencies and foreclosures. The CFPB advises that the National Mortgage Database project (which is part of the CFPB’s joint endeavor with the FHFA) hopes to develop a much better understanding of consumer shopping behavior and how it affects mortgage outcomes.

- Richard J. Andreano, Jr.

House Financial Services Committee Approves Oversight Plan; Committee Chair Gets New Subpoena Authority

The House Financial Services Committee recently voted unanimously to approve the Committee’s oversight plan for the 114th Congress.

According to the plan, the Committee intends to continue its close examination of the implementation of Dodd-Frank by the financial regulators. Concerning the CFPB in particular, the Committee intends to oversee the CFPB’s regulatory, supervisory, enforcement, and other activities, the effect of such activities on regulated entities and consumers, and the CFPB’s collaboration with other regulators. The Committee also intends to examine the CFPB’s governance structure and funding.

Specific issues on which the Committee intends to focus include:

  • Mortgages: The Committee plans to closely review the rulemaking by the CFPB and other agencies and monitor the coordination and implementation of such rules and their impact on the cost and availability of credit.

  • Credit scores and credit reports: The Committee plans to monitor related issues.

  • Access to financial services: The Committee plans to examine ways to expand access to mainstream financial products among traditionally underserved segments of the U.S. population.

  • Operation Choke Point”: The Committee plans to conduct oversight of the U.S. Department of Justice, financial regulators, and other agencies relating to this initiative.

  • Discrimination in lending: The Committee plans to examine the effectiveness of regulators’ fair lending oversight and enforcement efforts.

  • Diversity in financial services: The Committee plans to continue to monitor federal regulators’ efforts to implement Dodd-Frank diversity requirements.

  • Improper disclosure of personally identifiable information: The Committee plans to evaluate best practices for protecting the security and confidentiality of such information and examine how data breaches are disclosed to consumers.

  • Payment systems innovations/mobile payments: The Committee plans to review government and private sector efforts to achieve greater innovations and efficiencies in the payment systems.

  • Payment cards: The Committee plans to monitor payment card industry practices.

In carrying out the Committee’s plans, its chairperson, Republican Congressman Jeb Hensarling, will be able to use his new authority to issue subpoenas. According to a Politico report, the Committee voted 31-21 last week to amend its rules to give the chairperson unilateral authority to issue subpoenas without the need for a vote from other Committee members. A further amendment provides that the chairperson will give the ranking member written notice at least 48 hours in advance of authorizing and issuing a subpoena, except under “exigent circumstances.”

Other rules changes include shorter opening statements at hearings and the option for both parties to give certain Committee members additional time to question hearing witnesses beyond a five-minute limit.

- Barbara S. Mishkin

Diversity Reports at Two Federal Agencies Offer Glimpse of Regulatory Review under Impending Dodd-Frank Diversity Standards

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), signed by President Obama in 2010 in response to the financial crisis, includes a provision intended to remedy racial and gender discrepancies at federal financial regulatory agencies and private financial institutions. Section 342 of Dodd-Frank directs each of the federal financial regulatory agencies to create an Office of Minority and Women Inclusion (OMWI) to oversee diversity efforts at the agencies, and further, to develop standards for assessing diversity policies and practices at regulated financial entities. In October 2013, six federal agencies proposed joint diversity standards for public comment. Final standards could be issued in the near future.

Two reports recently issued by the Offices of Inspector General at the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) may provide some insight on the impending final standards. The House Financial Services Committee requested the reviews of the FDIC and OCC in response to a 2013 Government Accountability Office report on diversity, which concluded that very little had changed from 2007 to 2013 at federal financial agencies, despite the diversity provisions of Dodd-Frank. Committee members questioned whether agency practices were systemically disadvantageous to women and minorities.

The reviews focused in part on agency demographics, personnel practices, and efforts to increase diversity. The Inspectors also assessed the impact of the newly established OMWIs on agency policies and diversity efforts. In both reviews, the Inspectors compared the resulting data to that of the national civilian labor force. Even though the FDIC and OCC had taken measures to promote diversity as directed by Dodd-Frank, both reports concluded that more could be done.

In particular, the FDIC report highlighted a lack of Hispanics and women throughout the agency and in senior executive positions. Noting that female and minority representation at the FDIC remained relatively static since 2008, the Inspector discussed ongoing challenges to the agency’s efforts to increase diversity in the overall workforce. Many of these challenges are socioeconomic and thus beyond the agency’s control, such as low turnover of existing managers and executives, competition from the private sector for diverse candidates, and limited representation of minorities and women in certain parts of the country or in certain occupations. After identifying several areas for improvement, the Inspector offered specific recommendations relating to recruiting and workforce engagement, reliability of diversity data, and diversity policies.

The OCC fared somewhat better. The report noted that the OCC’s diversity initiatives—which included enhanced diversity tracking, outreach, and employee networking—resulted in the agency achieving overall workforce numbers that closely aligned with the national civilian labor force. However, the report also pointed out that these numbers did not translate across the entire organization, with representation of minorities and women at supervisory and senior-level positions falling well below that of the agency’s overall workforce.

These reports may offer insights into how the agencies will approach diversity issues for regulated entities under the final diversity standards for regulated entities. While these standards were expected before the end of 2014, their issuance has been delayed. Financial institutions and publicly traded companies subject to the standards can expect increased regulatory scrutiny of their diversity policies and procedures once the final standards are issued. Ballard Spahr’s diversity practice already is assisting financial institution clients with compliance measures.

- Brian D. Pedrow

Michigan Exempts Loss Mitigation Specialists from MLO Licensing

Michigan has updated its mortgage loan originator (MLO) licensing provisions to expressly exempt from licensure certain individuals involved in loss mitigation and modification services. The revision makes Michigan law consistent with applicable federal law, which exempts loss mitigation employees from licensing under the federal SAFE Act.

Specifically, the law exempts any individual who acts as, or is an employee of, a mortgage servicer that offers or negotiates the terms of residential mortgage loans for the purpose of renegotiating, modifying, replacing, or subordinating the principal of existing residential mortgage loans. Note that the exemption does not apply to any such individual who offers or negotiates the terms of a residential mortgage loan transaction that constitutes a refinancing under 12 CFR 1026.20(a) or that obligates a different consumer to pay the existing residential mortgage loan.

The provision is effective immediately.

- Marc D. Patterson

Copyright © 2015 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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