Nearly half of consumers do not shop around for a mortgage when purchasing a home, according to the National Survey of Mortgage Borrowers, a new voluntary survey jointly conducted by the Consumer Financial Protection Bureau (CFPB) and the Federal Housing Finance Agency.
The study was undertaken as part of the CFPB's Know Before You Owe mortgage initiative.
As a result of this revelation, the CFPB is releasing a suite of online tools, ‘Owning a Home,’ designed to give consumers the information and confidence they need to get the best deal.
‘Our study found that many consumers are not shopping for a mortgage,’ says Richard Cordray, director of the CFPB, in a release. ‘Consumers put great thought into the choice of a home, but the mortgage process continues to be intimidating. The Know Before You Owe 'Owning a Home' toolkit makes it easy to see how shopping for a mortgage can translate into big dollars saved in the long run. We want to enable consumers to be more savvy shoppers.’
The study reveals that although most of the risky features of mortgages have been eliminated since the start of the economic crisis, consumers are still intimidated by the different terms and features of the mortgages that are available. Key components such as the loan term, loan type and interest rate continue to baffle some borrowers, making it difficult for them to make comparisons.
In addition to failing to shop around before applying, the study shows that three out of four consumers only apply with one lender or broker. The CFPB says this is an indication that consumers are not filling out applications with multiple lenders to see which one can offer them the best deal.
What's more, about 70% of consumers are getting their mortgage information from lenders or brokers, as opposed to independent entities that don't have a stake in the outcome.
Finally, the study reveals that consumers who are knowledgeable about the mortgage process are much more likely to shop around for a loan.
The CFPB's new suite of tools is designed to inform and empower consumers shopping for a mortgage. It takes the consumer from the very start of the home buying process, with a guide to loan options, terminology and costs, through to the closing table with a closing checklist, the bureau says in its release.
Of particular interest will be the new Rate Checker tool, which helps consumers understand what interest rates may be available to them by using the same underwriting variables that lenders use on their internal rate sheets. The data behind the Rate Checker tool is updated daily and includes information from large banks, regional banks and credit unions, covering about 80% of the mortgage market.
Speaking at the Brookings Institution this week on the same topic, Cordray took a moment to debunk a popular myth that keeps many borrowers from doing more comparison shopping:
‘You can shop around for a mortgage, and it will not hurt your credit score,’ he said in his prepared remarks. ‘Within a certain window of time – generally between 14 and 45 days – multiple credit checks from mortgage lenders or brokers are treated as a single inquiry. This is because other creditors realize that you are only going to buy one home at a time. You can shop around and even submit multiple applications to obtain multiple initial estimates. The effect on your credit will be the same no matter how many lenders you consult.’
The new suite of online tools can be readily accessed via the CFPB's website. The big question, however, is how easily home shoppers will be able to find the new resource on the Web. The ‘Owning a Home’ home page comes up on the first page of the Google search results when searching under the term ‘Owning a Home,’ but is much farther down in the results when searching using the term ‘compare mortgage rates.’ This is important, as lenders are unlikely to point borrowers to the resource.
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