US Considers Prohibition on Lenders Charging Homebuyers for Title Insurance
The Consumer Financial Protection Bureau (CFPB) is contemplating a potential prohibition on mortgage bankers charging homebuyers for title insurance that primarily safeguards lenders. This move marks a departure from a longstanding industry norm.
Sources familiar with the matter indicate that the Consumer Financial Protection Bureau’s (CFPB) plan is still in its early stages. The bureau intends to kickstart this initiative by issuing a comprehensive request for information on closing costs, which includes title insurance and associated fees. This request is slated for release as early as this month, according to Bloomberg. However, a final proposal regarding closing costs, including title insurance, is not expected until next year, as confirmed by one of the sources.
The potential implementation of this initiative, if approved, could offer relief to prospective homebuyers grappling with challenges such as limited inventory, soaring prices, escalating closing costs, and a series of interest-rate hikes since 2022. Mortgage lenders and title insurers, currently navigating a housing slowdown, are likely to oppose such a measure.
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Maria Vullo, former superintendent of New York’s Department of Financial Services, expressed support for reducing homeowners’ closing costs, provided that lenders cannot shift these costs to homebuyers through alternative fees or higher interest rates. She emphasized that a title insurance policy primarily protects the lender’s interest, and it would be favorable for lenders to bear this cost themselves.
Recently, the CFPB also flagged concerns about the rising trend of homebuyers paying “discount points,” highlighting potential risks for consumers. The regulator noted a doubling in the percentage of homebuyers paying discount points from 2021 to 2023, especially among those with lower credit scores. CFPB Director Rohit Chopra underscored that higher interest rates have prompted buyers to pay upfront fees to reduce their interest payments, indicating uncertainty about future refinancing opportunities.
Meanwhile, research conducted by PYMNTS Intelligence and PSCU revealed that consumers are actively seeking better deals on mortgages and other credit products. Factors like interest rates and payment terms significantly influence consumers’ choice of financial institutions, often prompting them to switch to institutions offering superior offerings, as highlighted in the study “How Credit Product Rates Impact FI Selection.”
