Consumers Don't Shop for Mortgages and the CFPB Intends to Chan...

Richard Cordray, the director of the Consumer Financial Protection Bureau, gave a short speech today at the Brookings Institution. In his speech, he outlined several steps the CFPB is taking to help fix the mortgage market. In his view, one of the chief problems with the mortgage market is that consumers do not shop around for mortgages the same way they shop for other products, including houses. According to a recent CFPB study, "almost half of all borrowers seriously consider only a single lender or broker before deciding where to apply."

The CFPB's aims to solve this problem with some new tools. More after the break.

The CFPB's primary solution, as described today, are some new tools on its website. They are generally aimed at improving the amount and quality of information possessed by potential mortgagees. These tools include (i) a mortgage interest rate calculator, (ii) general information about different types of loan products and closing documents, and (iii) a plain language checklist for what to expect at closing and how to avoid common mistakes. In his remarks, Director Cordray focused on the rate calculator, claiming that it will offer more realistic rates for consumers for at least three reasons. First, the calculator draws from mortgage lenders' own internal rate sheets so consumers will have access to the same information that lenders have about the consumers. Second, it allows consumers to input a larger number of variables, including their credit scores, than other calculators. Finally, the CFPB's information is offered free from any agenda other than protecting consumers when they make mortgage decisions.

Although these strike me as modest steps toward improving the mortgage market, I think the focus on educating consumers with easy-to-use tools and plain-language checklists is a smart one. This is particularly true because the CFPB's own research found that borrowers "were almost twice as likely" to compare offers from multiple mortgage lenders when they were more confident about their knowledge of currently available interest rates. In the future, if my family decides to purchase our first house, we will probably consult these new tools to help understand our options before we talk with mortgage lenders. How about you?