The compulsory purchase of insurance by a mortgage borrower to protect their lender from a loan default is under investigation, according to a report from the leading financial news agency, Bloomberg.
The Consumer Financial Protection Bureau (CFPB) is questioning the validity of forcing borrowers as a condition of a loan to pay for insurance that protects lenders from an issue arising from a property title.
The CFPB will soon issue a request for information relating to all closing costs associated with a residential property. Under this process, interested parties can object to or justify the existing processes.
A spokesperson is quoted as saying the CFPB is “looking carefully at closing costs and fees consumers may encounter throughout the mortgage process”.
As an experienced real estate agent in your neighborhood, I welcome further inspection of closing costs that are imposed on buyers.
One of the big challenges for buyers with less than 20% deposit is the stipulation they must buy private mortgage insurance (PMI) to protect the lender in the event they default on repayments.
While PMI is a different policy to title insurance, there’s no doubt buyers face a range of imposts on their financial position in order to make a property purchase. A review by the CFPB on closing costs is welcomed.
Earlier this year, President Biden referred to these insurance policies, saying in a statement: “These charges, which benefit the lender but not the borrower, can add thousands to the upfront costs of a mortgage”.
Upfront costs “cut into the amount of homebuyers’ down payments and reduce homeowners’ available equity”, he said.
President Biden said the CFPB would be pursuing “rulemaking and guidance to address anti-competitive closing costs imposed by lenders on homebuyers and homeowners”.
“We are working with agencies across the government to foster greater competition in the mortgage market and help Americans save money when purchasing or refinancing a home,” he said.