Like the iconic scene out of “Jerry Maguire,” the Consumer Financial Protection Bureau (CFPB) is saying “help me, help you” to the public as the agency tries to spruce up several mortgage products for borrowers.
In particular, the CFPB is seeking insight on ways to improve mortgage refinances for homeowners who would benefit from refinancing and ways to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruptions.
The accrued information will be considered as the CFPB takes steps to support household financial stability and address gaps in the refi market. The agency indicated that the effort is part of a broader initiative to “promote competition and innovation in consumer finance markets.”
The request for information coincides with a broader initiative that the agency announced in May. At the time, the CFPB claimed it would seek to “identify stumbling blocks for those seeking to challenge the status quo with new products or services” instead of providing special regulatory treatment to individual firms.
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 facing 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, can receive timely payment relief that could help them avoid foreclosure and provide increased household financial stability. Additionally, such automatic forbearance features could also offer benefits to mortgage servicers and holders.
The takeaway:
As interest rates have spiked this year, the refi market has shrunk dramatically—almost 70% from 2021. According to the CFPB, new streamlined and automatic refinancing mortgage products could ensure that buyers or homeowners looking to refinance can benefit from the next interest rate drop.
“Mortgage payments are often a household’s single largest expenditure, so the terms of a mortgage greatly impact a household’s financial stability,” the CFPB said in a statement. “When interest rates decline, many borrowers benefit from the lower rates by refinancing their loans.
“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.”
“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.”
