PYMNTS Intelligence Alternate Banner June 2024

CFPB Could Block Lenders From Charging for Title Insurance

America’s leading consumer watchdog is reportedly weighing a sweeping change to the title insurance industry.

As Bloomberg News reported Wednesday (April 10), the Consumer Financial Protection Bureau (CFPB) is considering whether to forbid mortgage bankers from charging homeowners for title insurance, ending a long-held practice.

Sources say the CFPB’s plan is in the early stages. The bureau will begin to set the stage for this effort by making a broad request for information on closing costs, including title insurance and other fees, that will be made released as soon as this month, they told Bloomberg. A final proposal on closing costs would not come until next year, one of the sources said.

The report notes that this effort – if approved – could provide relief to prospective homebuyers struggling with a limited inventory, steep prices and closing costs, and a series of interest-rate hikes since in the last two years 2022. Mortgage lenders and title insurers — facing a housing slump — would likely oppose the measure.

“Reducing the homeowner’s closing costs is excellent policy, provided the lender cannot recover that cost in another way from the homebuyer through some other fee or a higher rate,” Maria Vullo, past superintendent of New York’s Department of Financial Services, told Bloomberg.

“A title insurance policy for the lender protects the lender’s interest. I think it is a positive, pro-consumer, pro-homeowner policy to say that the lender has to pay for it themselves.”

Last week, the CFPB said it was monitoring the increasing payment of “discount points” by homebuyers and the risk this could pose to consumers. The regulator said the percentage of homebuyers paying discount points doubled from 2021 to 2023, with this increase even greater among those with lower credit scores.

“Higher interest rates on mortgages have led buyers to pay upfront fees to lower their interest payments,” CFPB Director Rohit Chopra said in the release. “The heavy use of ‘discount points’ suggests that many borrowers are uncertain about their ability to refinance in the future.”

Meanwhile, research by PYMNTS Intelligence and PSCU has shown that consumers are actively looking for better deals on mortgages and other credit products.

Interest rates and payment terms are the most chief factors for consumers when picking a financial institution (FI), and they are the main reasons for account holders to look for another FI with better offerings, according to the study “How Credit Product Rates Impact FI Selection.”