Biden administration sets sights on reducing mortgage closing costs as part of crackdown on excessive fees

The Biden administration is ramping up its efforts to crack down on junk fees in the mortgage industry, citing concerns about the rising costs of home purchase loans. According to the Consumer Financial Protection Bureau (CFPB), closing costs for home purchase loans surged nearly 22% from 2021 to 2022, reaching an average of $5,954. This marks the largest annual increase since 2018.

Refinance closing costs also saw a significant spike, jumping 49% to an average of $4,979. The CFPB highlighted the disproportionate impact of these rising costs on first-time homebuyers and lower-income borrowers, with nearly 15% of them paying closing costs that exceeded their down payment.

The agency is working to combat the proliferation of junk fees in the mortgage industry, aiming to ensure that mortgage companies do not tack on unlawful fees to pad their profits. Closing costs typically include origination fees, appraisal fees, credit report fees, title insurance, discount points, and other charges.

While rising home prices and mortgage rates have contributed to the increase in closing costs, the CFPB is concerned that some of the uptick may be driven by misleading junk fees. Discount points and title insurance were specifically mentioned as areas where unfair or excessive charges may be occurring.

Industry experts have expressed mixed reactions to the CFPB’s crackdown on junk fees. Some argue that discount points, which allow borrowers to lower their interest rates by paying upfront fees, are not junk fees but rather a legitimate cost of obtaining a mortgage. However, the CFPB’s move to address convenience fees charged by mortgage companies for online or phone payments has garnered support from consumer advocates.

As the CFPB continues its efforts to rein in junk fees in the mortgage industry, borrowers are advised to carefully review their loan estimates and ask lenders about any fees they are asked to pay at closing. Experts warn that if lenders are forced to reduce these fees, they may offset the loss in revenue by increasing interest rates, ultimately impacting borrowers’ overall costs.