How to protect mortgage borrowers and how not to
I’ve been a strong supporter of the Consumer Financial Protection Bureau (CFPB) since its inception, but a recent move targeting multi-lender websites (ML) is more likely to harm mortgage borrowers than protect them.
There are two approaches to protecting mortgage buyers dealing with multiple lender websites. One approach, the one implemented by the CFPB, targets the referral fees charged by MLs. The second approach, ignored by the CFPB, targets the pricing systems implemented by lenders using ML. These are considered in turn.
CFPB on Reference Fees
The claim is that ML sites favor lenders who pay them the highest referral fees. In the recent statement by CFPB Director Rohit Chopra:
“Currently, many mortgage buyers are at risk of being manipulated by price comparison platforms. In some cases, they are simply presented with a list of companies from which the platform operators extracted the necessary bribes…Sometimes, the platforms simply hand over a buyer to the highest bidder.”
This statement does not identify, or even acknowledge, mortgage shopping sites that do not charge lenders referral fees. Readers will understand my feelings about it because www.mtgprofessor.com and www.kosher-reverse-mortgage.com they are my shopping sites and have no referral fees, or any other fees. The requirement for participating lenders is that they post their pricing and qualification requirements on my sites daily, and require that participating lenders abide by fair lending rules, discussed below.
I am not going to defend other sites that charge referral fees, one or more of them could be going after illegal acts cited by the CFPB director. But the director does not identify any of these criminals, so he suspects all of them. That’s not fair and it doesn’t help consumers.
I searched in vain for indications of what the CFPB would consider acceptable pricing rules and disclosures for MLs. The rules below that apply to my sites would work for others, with the additional requirement that referral fees be published and consistent across lenders. So the CFPB could do something that would really help the mortgage borrower: post the fee structures for all ML sites on the CFPB site.
While it would help to eliminate referral fee abuse by MLs, it will do nothing to stop abuse by lenders using those sites. If the CFPB were to identify MLs that met the rules governing referral fees, it might also identify those that require their participating lenders to meet fair lending rules, as is the case with my sites.
Stop lender abuse on multi-lender sites
The lenders on my site identify themselves as Certified Network Lenders (CNL) and are subject to fair lending rules. The following are some of the rules:
CNL offers the best price guaranteed: The prices published by each CNL are as low as or less than those offered by that CNL directly to borrowers through any other channel.
CNLs disclose complete price data: This includes the interest rate, points, origination fees, and all fixed dollar fees. On each ARM they offer, CNLs must provide the rate index, current index value, margin, rate adjustment caps, and maximum and minimum rates.
CNLs when blocking a loan must provide a block confirmation statement that includes the following:
- kind of product
- ARM detail (margin, index value, trailing stops, maximum/minimum rate)
- loan amount
- Interest rate
- Points
- Other lender fees
- Mortgage insurance premium: in advance or monthly
- Lock expiration date
CNLs that do not immediately block must comply with the “twin brother rule”. That rule states that the locked-in price will be the price that the lender would quote the same day on the identical transaction to the borrower’s twin requesting a price quote. This rule implies that if the market price decreases before the price quoted to the borrower can be locked in, the CNL will lock in the lower price. If the market price increases before the borrower’s quoted price can be locked, the CNL will not lock until the borrower explicitly authorizes it.
CNLs that override a fixed price because a property’s appraisal changes the price must act both ways: YoIf the appraised value is high enough to lower the price, the borrower receives the benefit of it.
CNLs that do not close within the lock-in period will extend the lock-in period at no cost to the borrower: If the borrower is primarily responsible for the underfunding, the CNL may charge a fee for a lock-in extension, but must post that fee. If CNL and the borrower disagree on who was responsible for the underfunding, CNL agrees to accept the professor’s judgment.
Final comment
The home mortgage is the most complicated instrument consumers encounter and the most difficult to navigate without overpaying. The optimal solution is the multi-lender website subject to mandatory disclosure of all fees paid to participating lenders, and with sites required to monitor their compliance with fair lending rules. CFPB has a ways to go.
