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Why the CFPB’s new “home loan toolkit” falls short

Shawn Von Talge



04-16-2015

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The Consumer Financial Protection Bureau (CFPB) recently introduced a guide titled “Your home loan toolkit” to aid consumers in the process of obtaining a mortgage and buying a home. Although the booklet does contain some worthwhile information in places (it should; it’s 26 pages long), overall it falls short due to its lack of pertinent details on several important aspects of the loan process and its coverage of numerous loan features that are no longer prevalent in today’s market.

Take for example the mention of “risky loan features” on page 7. In particular they address “balloon payments” and “prepayment penalties”. These features were certainly present prior to 2008 (more so in the “sub-prime” market) but such items have been void from mainstream lending for the last 7 years. In fact I have yet to see a prepayment penalty or balloon payment option present in the thousands of loans I’ve seen during this time.

CFPB Home Loan ToolkitAnother inadequacy of the toolkit is the section in which it advises consumers to always “shop with several lenders”. Although this certainly is a good action to take when trying to get the best loan, the CFPB fails to address one critical factor. More specifically, they fail to mention the fact that interest rates can and often do change several times a day due to the volatility that’s present in today’s market. So for example let’s say you wanted to compare rates between lender “A” and lender “B”. You call lender A for a rate quote on Monday and call lender B on Tuesday for the same thing. If the rates in the overall market happened to go down between Monday and Tuesday you may get a lower rate quote when you call lender B as a result. This may lead you to believe that lender B simply has the “better” rates to offer you when this may not be the case at all. In fact, it might even be the case that lender A’s rates are even lower than lender B’s on Tuesday! However, if you were to rely on CFPB’s toolkit you’d have no way of knowing this and may end up making an ill-advised decision.

What is also COMPLETELY absent in the CFPB’s handbook is any discussion of how important it is for the lender to ensure that your loan closes on time. What good is it if you select a lender based solely on the deal they’re offering you if that lender fails to get your loan closed on time or even worse causes the deal to fall through altogether? Don’t get me wrong, price and fees are important. But it’s just as important to work with a lender that can deliver on their promises, meet your expectations, and provide you with a smooth loan process from start to finish.

Thanks for reading!

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