CFPB seeks to expand homebuyer options

The Consumer Financial Protection Bureau (CFPB) is calling for government input on ways to stimulate new mortgage products that help families. The CFPB seeks insights into ways to improve mortgage refinancing for homeowners who would benefit from refinancing, especially for borrowers with smaller loan balances. The agency also seeks public input on ways to support automated short- and long-term loss mitigation assistance for homeowners experiencing financial disruption. The CFPB will use this information as it assesses measures to support household financial stability and address gaps in the refinancing market. Today’s initiative is part of a broader effort by the CFPB to promote competition and innovation in consumer credit markets.

“The mortgage market has not provided products that allow all households to save money by refinancing at a lower interest rate,” said CFPB director Rohit Chopra. “We look forward to input on ways in which borrowers taking out loans today can refinance at lower rates in the future.”

Mortgage payments are often the biggest expense of a family, so the terms of a mortgage greatly impact a family’s financial stability. When interest rates fall, many borrowers benefit from the lower rates by refinancing their loans. For example, researchers at the Federal Reserve Bank of Boston found that total consumer savings from mortgage refinancing from January 2020 to October 2020, during the refinancing boom, was $ 5.3 billion annually.

The typical consumer saved nearly $ 300 per month ($ 279) from refinancing during that time. The savings from refinancing a mortgage at a lower rate can translate into increased wealth and equity for borrowers. However, mortgage refinancing can be more difficult for borrowers with smaller loan balances to access. Black and Hispanic borrowers, who have smaller loans on average, did not participate in recent refinancing booms at the same rate as white borrowers.

The refinancing volume decreased dramatically, down nearly 70% from last year, due to rising interest rates. New simplified, self-refinancing mortgage products could ensure that those who buy a home now, or refinance to cover other needs, can benefit from the upcoming drop in interest rates.

Times of economic turbulence can pose significant challenges for mortgage borrowers. At the height of the COVID-19 pandemic, for example, millions of borrowers lost jobs and income and risked losing their homes. Forbearance protections, passed by Congress through the CARES Act, have allowed millions of homeowners with federal government-backed mortgages to temporarily stop monthly mortgage payments.

Many mortgage managers who did not qualify for the CARES Act protections followed the government’s lead and offered similar protections. Over the course of the pandemic, 8.2 million borrowers entered a lending program and, as of July 2022, 93% have exited. Of those who have dropped out of tolerance, only 5% are delinquent or in active foreclosure. The CFPB is interested in the features of these pandemic-related forbearance programs that should be made more generally available to borrowers and, in particular, whether there are ways to automate and streamline the provision of long-term loss mitigation assistance.

In particular, the CFPB requests information on:

  • Targeted and simplified refinancing programs: To improve refinancing, targeted and simplified refinancing programs were used, generally with lower transaction costs than traditional refinancing. Refinancing programs can lead to lower monthly payments and interest rates for homeowners who previously would have been unlikely or unable to refinance themselves.
  • Innovative refinancing products, such as automatic refinancing: Such products could automatically trigger a refinancing offer or automatically reduce the interest rate on a loan under certain circumstances. This could help homeowners currently facing refinancing hurdles, including those with lower-balance mortgages, to access a profitable refinance.
  • Automatic Tolerance and Long-Term Loss Mitigation Assistance: Mortgage products with auto-grant features can help ensure that homeowners whose income or financial circumstances are affected by events, such as natural disasters, are able to receive timely payment relief that could help them avoid foreclosure and provide greater financial stability for the family. In addition, such automatic granting capabilities could also provide benefits to mortgage managers and holders.

Competitive mortgage markets promote wealth creation opportunities and promote wider household financial stability. Today’s inquiries seek innovative and timely ideas to address persistent market failures and to help borrowers access profitable refinancing along with short- and long-term loss mitigation assistance. The government grant will help inform future policy initiatives, regulation and other mortgage innovation and competition initiatives.

To read the full report, click here.

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