Mortgage news this week is rife with the CFPB’s recent statement sharing the findings of a report which shows that nearly half of all borrowers do not shop around for a mortgage. Director Richard Cordray said in a statement released Monday, “When we say that almost half of consumers who take out a mortgage to buy a home fail to shop before applying for a mortgage, this means they seriously considered only a single lender or broker before making their decision.” This is a bad thing.
In a world where common sense leads the vast majority of homebuyers to contemplate where they want to live, what kind and how big of a house they want and can afford, and what kind of school district their kids will end up in, it makes little sense that things like who they get their mortgage from and at what rate receive far less, if any, comparison consideration. CFPB indicates that aspects such as economic aspects of the mortgage decision, such as what down payment they can afford or what mortgage terms fit their unique financial needs, are of equal, if not more importance.
It gets worse from there. CFPB also found that consumers are getting much of their information about mortgages from sources that have a vested interest in the outcome. That’s like asking Phillip Morris for advice on how to quit smoking. Borrowers are encouraged to speak with a wide range of mortgage professionals, from brokers and loan officers to housing counselors and websites.
CFPB’s main emphasis here is on borrower education, which is severely lacking in modern day America. They are seeking to “reduce the information gap between lenders, who understand mortgage pricing inside out, and consumers, to whom the process can often feel like a mystery.” They propose to do this by improving mortgage disclosures and tout their Know Before you Owe forms, which will become a reality this summer.
One controversial aspect of the CFPB’s new outreach to consumers is their Rate Checker, which allows borrowers to “input their own information and find out what interest rates they are likely to be offered from lenders in their area.” Moe bedard, founder of Loansafe.org, lauds this effort by the CFPB, but also highlights the negative reaction by those poised to profit from originating and overseeing mortgages.
Assuaging consumer fears about multiple credit checks negatively affecting their FICO scores, Cordray debunks that disinformation by imparting a little known gem of knowledge to borrowers. He says,
“And let me take a second to debunk a popular myth: You can shop around for a mortgage and it will not hurt your credit score. Within a certain window of time – generally between 14 and 45 days – multiple credit checks from mortgage lenders or brokers are treated as a single inquiry. This is because other creditors realize that you are only going to buy one home at a time. You can shop around and even submit multiple applications to obtain multiple initial estimates. The effect on your credit will be the same no matter how many lenders you consult.”