CFPB Launches 'Unbiased' Mortgage Rate Tool
WASHINGTON — The Consumer Financial Protection Bureau is launching a toolkit on Tuesday that will help consumers shop for a mortgage by finding the best rates in their area based on data the agency gathers from lenders.
The agency created the toolkit after a study, which is being released at the same time, found that nearly half of homebuyers did not actually shop around for a mortgage, a behavior the CFPB would like to change.
"It is time to start changing the culture of how people obtain their mortgages," said CFPB Director Richard Cordray, in prepared remarks at the Brookings Institution on Tuesday. "We need to change the process from one of 'getting a mortgage' to one of 'shopping for a mortgage.' Consumers have much more power than they may realize. They can use that power to take control of their financial outcomes."
The toolkit is already on the agency's website, as part of a beta release. The CFPB hopes to improve it over time. Its primary feature is a "rate checker" in which the borrower can input information and find the best mortgage rates in their area.
The agency said its "unbiased" rate checker is different than others already offered online because those tend to be averages based on borrowers with strong credit and large down payments. The CFPB's information, meanwhile, is based on data collected from lenders, and shows costs throughout the life of a loan.
"The data behind the Rate Checker is updated daily and includes information from large banks, regional banks and credit unions and covers about 80% of the mortgage market," the CFPB said.
The toolkit and survey are another effort by the agency not just to police lenders and monitor the effects of its new regulation and disclosures, but instead directly influence borrower behavior.
The study, which is based on a survey conducted jointly with the Federal Housing Finance Agency, found that nearly half of the 2,000 consumers who responded and bought a home in 2013 did not shop for rates before applying for a loan. Of the remaining half who did shop around, less than one in four filled out multiple applications with lenders to find the best deal.
Most borrowers depended on their Realtor, broker or existing banking relationship to give them the best deal — something the CFPB raised concerns about.
The study focused on 10 questions, out of the 100 asked, to 2,000 respondents who were purchasing a home rather than refinancing.
It found that 70% of the respondents said they depended on their lender or broker "a lot" to do the shopping for them; and 42% of borrowers said it was "very important" to have an established banking relationship with their mortgage lender. Those who did not put such an importance on the banking relationship were 40% more likely to shop around. The CFPB concluded that depending on a banking relationship "likely inhibits shopping."
"Certainly lenders and brokers can be valuable resources. But it is worth recognizing that they also have an important personal stake in selling the mortgage. What is best for them is not always going to be best for the consumer," Cordray said. "And because lenders and brokers have different business models, they may make money in different ways to stay competitive. So it is in the consumer's best interest to ask questions and get as much information as possible from several lenders or brokers before making a decision."
The study also found that those who were shopping for a mortgage tended to be more knowledgeable of market rates. About 55% of shoppers said they were "very familiar" with mortgage rates while 30% of shoppers said they were "not at all familiar." The CFPB estimates that a borrower with good credit and a 20% down payment could save more than half a percent by shopping around. That translates into a $3,500 savings in mortgage payments for the first five years on a conventional $200,000 mortgage with a 4% interest rate, the CFPB said as an example.
People may well put more time and effort into shopping for smaller products such as appliances and televisions than they do in shopping for the right mortgage, the CFPB said. The failure to look around can mean real money lost for consumers.
"People may well put more time and effort into shopping for smaller products such as appliances and televisions than they do in shopping for the right mortgage. The failure to look around can mean real money lost for consumers," Cordray said. "Clearly we need to try to instill more confidence in consumers — and by empowering them we can help them make the most of this process."