Jan. 27, 2015--Sorohan, Mike firstname.lastname@example.org
Under strong criticism from the Mortgage Bankers Association and other industry trade groups, the Consumer Financial Protection Bureau this weekend made tweaks to its controversial Rate Checker consumer tool.
But MBA President and CEO David Stevens said the tweaks do nothing to resolve “fundamental flaws” with the tool and continue to provide “misleading” information to consumers.
The CFPB on Jan. 13 unveiled this new borrower education tool on its website (http://www.consumerfinance.gov/owning-a-home/check-rates/), ostensibly to help consumers be better informed of rates and other costs when shopping for a mortgage. CFPB said this Rate Checker tool will allow consumers to “see what interest rates people with similar financial situations have been offered.”
The tool uses a credit score, state property location and a down payment percentage to generate an estimate for a borrower of mortgage rates available. The website indicates rate information for the rate checker is provided by a private firm who collect data from “actual lenders and is updated every business day.”
MBA responded quickly. In a letter to CFPB Director Richard Cordray last week (http://mba-pac.informz.net/mba-pac/data/images/PolicyDocuments/CFPB_Rate_Checker_Tool_Letter.pdf)), as well as several Mortgage Action Alliance Calls to Action (http://www.mba.org/Advocacy/MortgageActionAlliance), MBA cited “serious concerns with the scope, methodology and future plans for this new CFPB initiative.”
“When the imprimatur of the government is associated with particular data, the public assumes the data are complete and accurate. However, the lenders’ rates incorporated in the tool include only a mix of large banks, regional banks and credit unions. Notably, rates from independent mortgage banks do not appear to be included in the data. Similarly, discount points, origination fees and mortgage insurance are not included, yet are a significant part of the cost of mortgage finance--and are critical for any website that purports to be a comprehensive borrower decision tool.”
Stevens added the CFPB “has created a mortgage shopping tool that likely violates the mortgage disclosure requirements that they have put in place for lenders to follow in order to protect and fully disclose the full costs of a mortgage to a consumer.”
Over the weekend, the CFPB issued a new blog (http://www.consumerfinance.gov/blog/7-factors-that-determine-your-mortgage-interest-rate/) outlining tweaks it made to the Rate Checker tool. These revisions discuss which factors determine loan rates, noting that interest is "only one of the many costs you will pay when getting a mortgage.” The checker is also more clearly marked as a “beta” site, although Stevens noted it remains unclear that consumers really know what “beta” means.
“It is seriously alarming that the very agency tasked with promoting transparency to consumers has created a play-toy mechanism that does anything but give accurate information to consumers,” Stevens said. “We know that any lender that put up this tool on its website would not be able to stand up to the CFPB’s one stringent guidelines.”
MBA said significant problems remain with the tool. It said the new blog post leaves out important variables that drive interest rate determinations, such as type of property (single-family/condo/mfg. home) and use of property (primary residence/second home/investor), lock/float and lock-in period. The blog also fails to mention how Qualified Mortgage/non-QM could impact rates. In addition, while the revised rate checker makes references to the importance of certain other fees, it fails to address other fundamental flaws with the tool, including:
• small sample size;
• biased sample (e.g., exclusion of independent mortgage banks and community banks);
• exclusion of certain products from the site (20-year, 5/5 ARM);
• apparent exclusion of certain known fees from the rate checker quotes (LLPAs, FHA MIP);
• no APR discussion;
• possibly “deceptive phrasing,” e.g., showing the median rate but saying that “most lenders are offering rates at or below X.XX%” ("technically true, but highly misleading," MBA said);
• incomprehensible “-0.5 to +0.5” discount points; and
• lack of transparency on the process and due diligence used to select the Rate Checker vendor; the vendor’s methodology behind the rate quotes; and the CFPB’s vision regarding the future “enhancements” to the tracker.
“We’ve stood with the CFPB before when they’ve done the right thing; in this case, they are wrong,” Stevens said. “We don’t like this because it is just flat-out bad. The Bureau should leave rate quotes to lenders.”
Stevens insisted that the CFPB should “take the rate checker down and work with the industry and other stakeholders to address the many shortcomings.”