By Peter Ricci
Mortgage complains reigned supreme in the Consumer Financial Protection Bureau’s (CFPB) semi-annual report to Congress, comprising 43 percent of the 55,300 complaints the agency received from consumers in its first 11 months of existence.
The make-up of those complaints, though, was surprising, especially considering that obtaining home financing remains among the premier complaints from real estate agents in the homebuying process.
But as the CFPB explained, the specific problems consumers addressed in their complaints dealt more with the handling of loans, not so much the origination of loans. Here’s how the agency broke it down:
- Eight percent reported problems when applying for a loan, whether it was with the loan application, the loan originator or the mortgage broker.
- Two percent reported problems at the credit decision/underwriting stage.
- Four percent had issues with the settlement process and costs.
- Twenty-five percent experienced trouble when making payments, with either loan servicing, payments or escrow accounts.
- Finally, 54 percent had problems when they were unable to pay, with loan modifications, collections or foreclosure.
For some perspective on the numbers, we chatted with Spencer Cowan, a vice president with the Woodstock Institute, a Chicago-based research and policy organization that studies fair lending and finance, among other topics.
The CFPB report, Cowan said, is actually not that bad from the agent/lender perspective, considering that just 8 percent of the complaints the CFPB received dealt with the origination stage of mortgages.
Rather, the true lingering issue with the mortgage markets, Cowan said, is actually outside of the CFPB report and even its stated mission – the problem is the financial market’s narrow offering of mortgage products.
“Lenders don’t seem to have a product that is between government loans and prime loans,” Cowan said. “There doesn’t seem to be much of an intermediate product.”
Mortgage markets, Cowan explained, operate on a “one or the other” model, where borrowers either have a high FICO score and quality for a prime loan or, because of prior credit troubles or a moderate income level, can only qualify for FHA financing – meaning the FHA is serving a role it was not designed for.
FHA loans, Cowan said, are a fine mortgage product, but their low downpayment requirements come with added fees and PMI that can prove costly to homeowners; thus, what the mortgage markets truly need is that “intermediate product,” a loan offering for credit-worthy borrowers who lack perfect credit, but are above the standards typically accepted for FHA financing (a FICO score in the 680-700 range, basically). And without a legislative incentive, he doesn’t see such a product being offered; after all, why would the private sector offer such a loan when FHA financing is available?
Give us your take – would an intermediate mortgage product – one removed from the high standards of a prime loan but with more stringent requirements than FHA financing – solve some of the mortgage blues agents have been reporting in the post-boom marketplace?