TheMReport — News and strategies for the evolving mortgage marketplace.
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Th e M Rep o RT | 39 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION the latest cFPB: nearly Half of Homebuyers don't shop around for mortgages homebuyers stand to save thousands by comparing lender rates, but many don't take the time to do so. c lose to half of American homebuyers don't do the legwork when it comes to finding the best deal on their homes, the Consumer Financial Protection Bureau (CFPB) reported. Looking at the shopping behaviors of mortgage borrowers in 2013, the bureau found that 47 percent of buyers don't take the time to shop around and compare lenders, resulting in potentially higher costs. Furthermore, 77 per- cent end up applying with only one lender or broker rather than filling out multiple applications to see who will offer the best deal. "Buying a home is a big purchase, but it's just that: a purchase," wrote CFPB econo- mist Sergei Kulaev in a post on the agency's website. "We shop to find the best price for laptops or appliances, but ... almost half of us don't shop around for a mortgage when we buy a home." The CFPB survey also found modern borrowers tend to rely on information from people with something to sell them, including the 70 percent who said they use lenders and brokers to get "a lot" of their mortgage information. Thirty percent said they relied heavily on their real estate agent for mortgage information. "While lenders, brokers, and real estate agents can be informa- tive, they also have a stake in the transaction," Kulaev said. "The report found many fewer, 20 to 41 percent of borrowers, get a lot of their information from outside sources such as websites, finan- cial and housing counselors, or friends, relatives or coworkers." Those who do shop around for the best rate stand to save thousands of dollars. Over the first five years of their mortgage, a borrower with a 4.0 percent 30-year fixed rate could save up to $3,500 in mortgage payments over one with a 4.5 percent rate, the CFPB estimates. In order to give borrow- ers more tools to gauge their options, the CFPB announced the launch of "Owning a Home," a Web-based set of resources and tools designed to give shoppers more information at every step of the homebuying process. Those tools include: a guide on different loan options, includ- ing mortgage terms and types of products available; interest rate comparisons for similar borrow- ers; a guide to closing documents; and a final closing checklist. Introduced nearly a year after the bureau's qualified mortgage (QM) guidelines went into effect, the CFPB's new program isn't its first step into borrower education initiatives. In late 2013, the bureau released a final rule on integrated mortgage disclosures, which will go into effect later this year. That rule is part of the CFPB's Know Before You Owe program, which is intended to make mortgage disclosures and documents easier for consumers to understand. In prepared remarks to be delivered at the Brookings Institution, CFPB Director Richard Cordray said the Know Before You Owe and Owning a Home programs make it possible "for consumers to have conversa- tions with lenders that are better informed and more productive." "When consumers actively shop for a mortgage, they will be in a better position to make the best decision they can about what is probably the single larg- est financial transaction of their lives," Cordray said. "People should walk away from the mortgage process feeling secure that they have made a sound and sustainable decision about their future, and they should be right to feel that way." peak of $84 billion reached in the second quarter of 2006. "Lower mortgage rates, coupled with greater house prices apprecia- tion last year, also brought about a larger share of borrowers cashing out home equity at the time of refi- nance," Kiefer said. "However, while the percentage is up, the total dollar amount declined by nearly $1 billion from the third quarter of 2014, and nearly $4.6 billion from the fourth quarter 2013." About 34 percent of borrow- ers who refinanced during Q 4 shortened their loan term, down slightly from 35 percent the previous quarter. Sixty percent kept the same term, while only 6 percent lengthened the term of their mortgage loan. Thirty-five percent of the bor- rowers who refinanced outside of the government's Home Affordable Refinance Program (HARP) shortened their loan terms compared to 33 percent who refinanced through HARP. The Federal Housing Finance Agency (FHFA) estimates there are more than 700,000 borrowers nationwide who are eligible to refinance through HARP, which was created in 2009 as part of the government's Making Home Affordable initiative. Homeowners who refinanced in Q4 lowered their interest rate by an average of 1.3 percentage points, which calculates to about 23 percent—or about $2,500 in inter- est over 12 months on a $200,000 loan. The interest rate reduction was higher for those who refi- nanced through HARP—about 1.6 percentage points on average, which calculates to an average savings on interest of $275 per month and $3,300 over 12 months, according to Freddie Mac. Also according to the report, more than 95 percent of borrowers went with a fixed-rate loan when they refinanced. About 67 percent of borrowers who originally had an adjustable-rate mortgage chose a fixed-rate loan when they refinanced compared to only 4 percent who originally had a fixed- rate loan and went with an ARM when they refinanced. Continued on Page 33