Could more mortgage shopping prevent foreclosures?
The Consumer Financial Protection Bureau is currently examining how consumers shop for mortgages, which could provide some clues to unraveling the housing crisis. In its first semi-annual report to Congress, the CFPB notes that home buyers are taking on less complex mortgages than they were before the bust, but suggests that many may be reluctant to shop around for the best deal. The implication is that mortgage borrowers might miss potential savings that could make paying off their homes easier.
The CFPB points out that about half of all mortgage borrowers do little to no cost-comparisons: “About 20 to 30 percent of mortgage borrowers contacted only one lender [and] a similar fraction considered two lenders.” The figures comes from surveys before the financial crisis, but the CFPB believes that consumers could be underestimating the potential value of shopping around.
Since the end of the housing bust, home buyers have made a major shift back toward buying simpler, more traditional mortgages that rely on fixed-rate, fixed-payment loans — partly because mortgage lenders have gotten rid of some overly complex products, which helped contribute to the crisis, but also because interest rates are currently so low. Even so, there are complex decisions that mortgage borrowers still have to make, the report explains. “For example, these products often offer a trade-off between interest rates and discount points. Studies offer some evidence that many consumers struggle to understand this relationship.”
The CFPB has launched its own consumer education program to help consumers better understand the process of taking on a mortgage. But the bureau is also ramping up its efforts to push mortgage lenders to disclose more detailed information about the mortgages they provide. The White House is doubling down on this effort Wednesday, unveiling a “Homeowners’ Bill of Rights” that aims to strengthen disclosure and prevent conflicts of interest. The concern, however, is that overzealous regulation of mortgage lenders — could make them more reluctant to lend, slowing the housing recovery further.