Does the CFPB have mortgage rate discount points?

The share is Double Points for Mortgage Payment Discount A Consumer Financial Protection Bureau study of quarterly Home Mortgage Disclosure Act data found greater increases from 2021 to 2023 for consumers with lower credit scores.

The study was published weeks later The bureau published a blog complaining about the so-called garbage fee During the mortgage loan origination process.

“Rising mortgage rates are causing borrowers to pay upfront fees to lower their interest payments,” CFPB Director Rohit Chopra said in a press release. The heavy use of “discount points” suggests that many borrowers are unsure whether they can afford a loan. It will be further improved in the future. “

In a March 8 blog post, the CFPB noted the rising cost of discount points. “However, these points may not always save borrowers money and may indeed increase costs to borrowers. The CFPB is continuing to monitor market trends in this area,” the post said.

But there are differences between the two concepts, said Scott Olson, executive director of Community Home Lenders of America, which has supported the CFPB’s garbage fee.

“Discount points are not ‘trash fees.’ They are expressly permitted by the Dodd-Frank Act, and [Chopra] “Higher mortgage rates are causing borrowers to pay upfront fees to lower their interest payments,” Olson himself said.

He said they could be of great value to borrowers because the trade-off is they get lower mortgage rates and lower repayments, especially if they hold on to the loan for the long term.

“The use of discount fees has definitely increased over the past few years, but that’s largely due to market factors with soaring mortgage rates,” Olson noted.

Permanent rate cuts may not make financial sense for borrowers because of savings differentials The gap between those who pay discount points and those who don’t is very smallFreddie Mac said in a January report. The CFPB’s post on discount points mentioned the study, adding that it did not fully control for borrower and loan attributes.

A CFPB spokesperson said in an email response that the bureau’s analysis does not include interim purchases and does not distinguish between points paid by buyers and points paid by third parties.

A CFPB spokesman said it recognizes that the calculation changes depending on whether the discount points are paid by the seller or the builder. “In these cases, the question becomes whether discount points are more beneficial than other types of offers, all of which add to the complexity of the decision.”

Marty Green, principal at the law firm Polunsky Beitel Green, said the CFPB report also lacks data on the loans available to consumers without discount points.

“One major consequence of the volatile interest rate environment over the past two years is that lenders sometimes do not offer undiscounted rates to applicants,” Green said in an email.

The analysis did not consider Changes in the level pricing adjustment matrix for government-sponsored enterprise loans last year.

“LLPAs are typically passed through points to borrowers, so it’s natural to see more and more borrowers getting loans that include discount points,” Green said. “The percentage of borrowers paying discount points is bound to increase when ( a) Shaoshi loan products offer affordable rates, and (b) GSE increases use of LLPA to cover more loan products/borrowers.”

The bureau’s study looked at quarterly HMDA data from the first quarter of 2019 to the third quarter of last year.

For purchases, 60.7% of mortgage borrowers paid discount points in September 2023, compared with 30.5% in January 2021 and 29.5% in January 2019. During the same period, the share of cash-out refinancers rose to 87.4% from 61.2% and 61.7%. The share of interest- and term-refinance customers paying discount points was 57.5%, compared with 36.4% and 41.2%, respectively.

In the first nine months of last year, 88.5% of cash mortgages were purchased at a rate compared to 58.7% and 56.2% were refinanced for both rate and term.

The CFPB speculated in the report that cash-out borrowers may use some of the equity they took out of their properties in a new loan not just for the buyout but also to pay for more discount points. Other borrowers need to come out of pocket to pay the buyout.

However, there has been an increase in the use of permanent and permanent discount points temporary interest rate cut (often offered by home builders) is a natural result of the rise in mortgage rates over the past two years.

In November 2023, anecdotal evidence suggests that 30-year fixed-rate mortgage rates are above 8%.Interest rates have since fallen, but Still relatively high at 6.82%Freddie Mac’s April 4 primary mortgage market survey report.

“Given that mortgage rates are significantly higher than they were in 2019, it’s not surprising that more borrowers have taken advantage of discount points in recent years,” a spokesman for the Mortgage Bankers Association said in a statement. “When mortgage rates fall, There’s little incentive to pay for discount points.” It was as low as 3% in 2021, while rising sharply to more than 7% last year. “

MBA disputes the CFPB’s junk fee allegations, pointing to consumer information requirements established under the RESPA-TILA Comprehensive Disclosure Rule.

A review of the CFPB complaint database revealed that many consumers have submitted comments regarding the payment of discount points, including how and when this information is disclosed.

“Advertising and initial offers made by lenders to consumers often include discount points in the fine print, which can make their rates appear more competitive,” a CFPB online post accompanying the study reads. “While discount points and APR In advertising and later loan estimates and settlement disclosures, consumers who are unaware of the discount point mechanism may mistakenly believe that the lender’s rate is a better deal than it actually is.”

The CFPB said the increased use of discount points could lead to higher overall loan costs. Between 2021 and 2022, the median total loan cost for a home purchase loan jumped 21.8%, while the median total loan cost for a refinance loan increased 49.3%.

By loan type, about 65% of FHA borrowers paid discount points, compared with 62% of VA program users and 57% of borrowers who qualified for conventional loans. %.

FHA borrowers have particularly low credit scores, and four out of five mortgages it insures are to first-time homebuyers.

The CFPB’s theory is that eligibility issues, particularly debt-to-income ratios, make it likely that these borrowers will lower their interest rates to lower their payments.

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