On January 13, 2015, the Consumer Financial Protection Bureau (CFPB) released a report on consumers' mortgage shopping experiences. The CFPB found that almost half of consumers who take out a mortgage fail to shop prior to application and that consumers seriously consider only a single lender or mortgage broker before choosing where to apply. The CFPB also found that the primary source of information relied on by consumers is their lender or broker, followed by a real estate agent.
According to the CFPB, such consumer behavior leads to negative consequences, namely, "failing to shop means money lost for consumers," and "while lenders and brokers can be valuable resources [of information], they have a stake in the selling of the mortgage, so what is best for the lender or broker is not always best for the consumer." The CFPB has also concluded that consumers are more likely to shop around if they are informed and familiar with available interest rates.
Accordingly, as part of its Know Before You Owe mortgage initiative, the CFPB has released "Owning a Home" interactive, an online toolkit that provides consumers with "the information and confidence they need to get the best deal." In addition to explaining various loan options, setting forth a closing checklist, and explaining the meaning of various closing documents, the Owning a Home toolkit provides an interactive Rate Checker tool. The Rate Checker sets forth for each state an interest rate that is offered by most lenders in that state. The data "comes from actual lenders and is updated every day." A review of the Rate Checker as of January 27, 2015, shows that, for the vast majority of U.S. states, a consumer with a credit score of 700-719, who is looking to purchase a home with a 10% down payment, will get a fixed rate, conventional, thirty-year mortgage with a 3.875% interest rate from most lenders.
The Rate Checker can be an extremely useful tool for consumers as long as its data is accurate. Some room for variations and error is to be expected but if the reported rates are significantly higher than the actual industry averages then consumers who rely on the Rate Checker may end up with higher interest rates than those available in the market. On the other hand, if the Rate Checker reports interest rates significantly lower than the market averages, consumers will end up dissatisfied when they cannot find the same rates on the market and inquiries to the CFPB, as well as complaints about their mortgages brokers, will likely result. So far, the interest rate of 3.875% reported on the Rate Checker is higher than the U.S. average as of January 22 of 3.63%, according to Freddie Mac.
We will continue to monitor the CFPB's Owning a Home and Rate Checker tools for accuracy and updates.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
