CFPB Explores Ways to Shape Future Policy Initiatives

The Consumer Financial Protection Bureau (CFPB) is asking for public input on ways to spur new mortgage products that help households. The CFPB seeks insights on ways to improve mortgage refinances for homeowners who would benefit from refinancing, especially for borrowers with smaller loan balances. The agency also seeks public input on ways to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruptions. The CFPB will use this information as it considers steps to support household financial stability and address refinance market gaps. Today’s initiative is part of a broader CFPB effort to promote competition and innovation in consumer finance markets.

“The mortgage market has not provided products that allow all households to save money by refinancing at a lower interest rate,” said CFPB Director Rohit Chopra. “We are eager for input on ways that borrowers taking out loans today can refinance to lower rates in the future.”

Mortgage payments are often a household’s single largest expenditure, so the terms of a mortgage greatly impact a household’s financial stability. When interest rates decline, many borrowers benefit from the lower rates by refinancing their loans. For example, researchers at the Federal Reserve Bank of Boston found that total consumer savings from mortgage refinancing from January 2020 to October 2020, during the refinancing boom, was $5.3 billion annually.

The typical consumer saved nearly $300 a month ($279) from refinancing during that period. The savings from refinancing a mortgage at a lower rate can translate into increased wealth and equity for borrowers. However, mortgage refinancing can be harder to access for borrowers with smaller loan balances. Black and Hispanic borrowers, who on average have smaller loans, have not participated in recent refinance booms at the same rate as white borrowers.

Refinancing volume has dropped dramatically, down almost 70% from last year, as interest rates have risen. New streamlined and automatic refinancing mortgage products could make sure that those buying a home now, or refinancing to cover other needs, are able to benefit from the next interest rate drop.

Periods of economic turmoil can pose significant challenges for mortgage borrowers. At the height of the COVID-19 pandemic, for example, millions of borrowers lost jobs and income and were at risk of losing their homes. Forbearance protections, passed by Congress via the CARES Act, allowed millions of homeowners with federally-backed mortgages to temporarily stop their monthly mortgage payments.

Many servicers of mortgages that did not qualify for CARES Act protections followed the government’s lead and offered similar protections. Over the course of the pandemic, 8.2 million borrowers entered a forbearance program, and as of July 2022, 93% have exited. Of those who have exited forbearance, only 5% are delinquent or in active foreclosure. The CFPB is interested in the features of these pandemic-related forbearance programs that should be made more generally available to borrowers, and in particular, if there are ways to automate and streamline the offering of long-term loss mitigation assistance.

Specifically, the CFPB is requesting information about:

• Targeted and streamlined refinance programs: Targeted and streamlined refinance programs have been used to improve refinancing, typically with lower transaction costs than traditional refinances. Refinance programs can lead to lower monthly payments and interest rates for homeowners who previously would have been unlikely or unable to refinance.
• Innovative refinancing products, such as automatic refinancing: Such products might automatically trigger an offer to refinance or automatically reduce a loan’s interest rate in certain circumstances. This could help homeowners who currently face barriers to refinancing, including those with lower-balance mortgages, access beneficial refinancing.
• Automatic forbearance and long-term loss mitigation assistance: Mortgage products with automatic forbearance features may help ensure that homeowners whose incomes or financial situations are affected by events, such as natural disasters, are able to receive timely payment relief that could help them avoid foreclosure and provide increased household financial stability.  Additionally, such automatic forbearance features could provide benefits for mortgage servicers and holders as well.

Competitive mortgage markets promote opportunities for wealth creation and promote broader household financial stability. Today’s request for information seeks innovative and timely ideas to address persistent market failures and to help borrowers access beneficial refinancing along with short- and long-term loss mitigation assistance. Public input will help inform future policy initiatives, rulemaking, and other mortgage competition and innovation initiatives.

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