They will have absolutely no impact on the mortgage industry – and very little impact on consumer behavior.
I never bought into all the hubbub surrounding the CFPB's new rate checker tool, which some lenders want to see taken down because it is ‘misleading’ due to the fact that lender points and fees are not included in the calculation. The first thing I thought when I saw the new tool was, ‘Good, let the bureau shoot itself in the foot with this.’
Is it hypocritical that the CFPB is leaving out the very information it requires lenders to disclose under its own regulations and which can drastically alter the estimated monthly payment? Yes, of course it is – I agree, it looks bad – and I can totally understand why lenders would be furious about this. But I don't think consumers are at all preoccupied with whether or not this somewhat enigmatic regulatory body occasionally contradicts itself.
Also, I don't think consumers will be using the CFPB's rate checker tool that much to begin with, simply because they won't be able find it. You see, these tools are nothing new – the Internet is already clogged with them – so it's really just a question as to which ones are on the first page of the Google search results, or which ones borrowers are ‘directed to’ by way of links.
Heck, you could say these free tools were already ‘commoditized’ long before Google and the CFPB introduced their own versions. I think the biggest question moving forward is whose rate checker tool is the most accurate. And that, of course, will depend on who has access to the most accurate real-time data.
Can these tools be misleading for consumers? Maybe to a small degree – but I argue that as along as a consumer is aware that the estimate doesn't include, for example, points and fees, they should not be that thrown-off by the results. For consumers who are relatively well educated and understand the basics of the mortgage process – in particular how rates are locked prior to closing – these tools could be useful in running ‘rough calculations.’
For those consumers who are already confused, I say any additional confusion caused by these tools won't really matter.
Google's new tool, which can be found by simply typing ‘mortgage calculator’ into Google Search, is compelling in that it is easy to use and draws on a vast amount of data. After a user fills out the fields in the simple Web form – providing basic information including mortgage amount, interest rate and term – the tool returns two totals, the total cost of the mortgage and the monthly payment. A user can also switch the tool's options so that they start with the desired monthly payment and work ‘backward’ through the process.
The CFPB's tool collects quite a bit more information by comparison. It includes fields for credit score range, state, house price, down payment, rate type, loan type and loan amount. It also includes a section designed to educate consumers on how compound interest works.
Why did the CFPB decide to release its own rate checker tool? For educational purposes, the bureau says. That's where things get ‘muddy,’ you see, because lenders are actually lending money and are using their rate checker tools for marketing purposes, whereas the CFPB's rate checker is purely for education. In making this argument, the bureau conveniently sidesteps the ethical issue of whether or not it is setting a good example by adhering to its own rules.
I don't think lenders have much to fear from the CFPB's rate checker tool simply because it won't be taken any more seriously than any other rate-checking tool on the Web. Providing consumers are aware that mortgage rates are constantly changing and that these tools are just providing an estimate of what their monthly mortgage payment might be, based on the given criteria, there shouldn't be much consumer confusion either. I think these tools will become more sophisticated and more accurate over time, thus making them of greater value to the ‘smart’ borrowers – you know, the ones who open and actually read their monthly statements.
Meanwhile, as the CFPB's recent research shows, a high percentage of borrowers will continue to take the first mortgage deal they are offered – without using any rate checker tool at all.
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