ATR Submits Comments in Response to CFPB’s Mortgage Closing Costs RFI 

On July 30, 2024, Americans for Tax Reform submitted a comment letter to the Consumer Financial Protection Bureau (CFPB) addressing the real issues contributing to unaffordable housing in the U.S. Contrary to the CFPB’s assumption that mortgage closing costs significantly impact housing affordability, the letter highlights the primary contributors, such as restrictive monetary policy, a housing supply shortage, and high property taxes. A copy of the letter can be read here. 

The CFPB’s focus on closing costs and so-called “junk fees” stems from a misguided attempt to address housing affordability by targeting peripheral expenses rather than core issues. By scrutinizing these fees, the CFPB aims to reduce the upfront financial burden on homebuyers, assuming this will make housing more accessible. However, this approach overlooks the primary factors driving up housing costs, such as high interest rates, supply shortages, and escalating property taxes. The emphasis on closing costs diverts attention from these significant contributors, potentially leading to ineffective or counterproductive regulatory measures. 

The comment letter points out how the current high interest rate environment, driven by restrictive monetary policy, has significantly increased the cost of borrowing. This has led to a decline in home sales and a sharp rise in home prices:

In May 2024, home prices rose 5.8 percent compared to the previous year—reaching a median of $419,300. In June 2024, existing-home prices hit another record—rising to a median price of $426,900. Over the past fifty years, the median sales price of a house sold in the U.S. has increased by 1,058 percent.

The CFPB’s focus on closing costs diverts attention from the real issue: the lack of housing supply unable to keep pace with housing demand. High interest rates have stifled new housing starts, and restrictive zoning laws and other regulatory barriers further impede homebuilding. Rent controls in states like New York and California exacerbate supply shortages, leading to higher rental prices and contributing to instability in banks exposed to properties under rent regulation.

The letter explains that: 

Data from the Federal Reserve Bank of St. Louis shows a four-month continuous decline in new single-family housing units. Privately-owned housing units authorized by permits has been relatively flat since 2022 and is seeing slower growth than parts of the 1970s, 1980s, and the late 1990s. At the same time, the total number of U.S. households has gone up by more than 92 percent over the past fifty years.

The letter goes on to point out how high property taxes disproportionately burden low-income households, hurting low-income homeowners and minorities. Reducing property taxes would significantly lower the cost of homeownership and enhance affordability. Research conducted on property taxes demonstrates their contribution to the affordability issue:

Reducing property taxes is a better way to lower the cost of owning a home and increase home affordability. Low-income households are harmed by high property taxes more than any other group. In fact, “[r]ising property taxes can lead to displacement and widen the racial wealth gap.” According to a paper from The University of Chicago, “the property tax disproportionately burdens owners of less valuable homes.” Another recent paper from the Joint Center for Housing Studies of Harvard University finds high housing costs continue to be a problem. According to Fox Business, “[t]he report cites that higher interest rates and rising property taxes are partially to blame for the high housing costs.”

The CFPB is also wrongly targeting credit reports. The agency fails to consider that price caps would likely lead to credit reporting agencies charging more for other services to offset lost revenue:

The Fair Credit Reporting Act was enacted to ensure “fair and accurate credit reporting.” After a consumer makes one request for a credit report, the credit reporting agency (CRA) “may impose a reasonable charge on a consumer” as long as it does not exceed $15.50 as adjusted for inflation. The CFPB criticizes CRAs for the increase in the price of credit reports without considering how the $15.50 price cap may affect prices on other services offered by the CRAs. The price cap may affect how much CRAs will charge resellers and then pass on that cost to lenders. The price cap may also affect the price of “rapid rescores.” A loss of revenue from certain services is likely to increase prices for other services.

The CFPB needs to shift its focus from mortgage closing costs to the actual contributors to housing unaffordability. Increasing housing supply, reducing government-subsidized demand, lowering property taxes, and removing burdensome regulations are crucial steps. Lawmakers must prioritize deregulation and incentivize housing development to make homes more affordable for all Americans. Focusing on minute and negligible closing costs will not change the harsh reality that unaffordable housing costs are a result of excessive government interference in the U.S. housing market.