Streamlined refinancing might assist extra owners, mortgage bankers inform CFPB

Mortgage refinancings that limit underwriting requirements could help more borrowers lock in lower rates, the Mortgage Bankers Association said in comments Tuesday to the Consumer Financial Protection Bureau.

The proposals were part of the trade group’s response to the CFPB’s September request for information on mortgage products that would boost competition and support the financial stability of households.

The bureau’s effort to spread the benefits of refinancing to a wider pool of Americans comes after a refinancing boom helped push U.S. mortgage originations to record levels in 2020 and 2021.

The Mortgage Bankers Association says that streamlined underwriting for certain borrowers could enable more Americans to benefit from refinancing.

Yuvraj Khanna/Bloomberg

More than 16 million Americans took advantage of super-low interest rates to reduce their monthly mortgage payments in recent years, the MBA said. Lower monthly payments can help homeowners build equity and wealth. 

But the benefits of the recent refi boom failed to reach many low-income and minority homeowners, the CFPB found.

“The mortgage market has not provided products that allow all households to save money by refinancing at a lower interest rate,” CFPB Director Rohit Chopra said in the agency’s request for information.

The Mortgage Bankers Association provided input about streamlined refinancings, which don’t require borrowers to fulfill traditional underwriting requirements such as income checks and property appraisals. They are currently offered on Federal Housing Administration loans.

Still, these quicker refis come with rules. To be eligible, FHA borrowers must have made at least six monthly payments and be current on their mortgage. And the resulting mortgage must decrease the borrower’s rate by at least 0.5 percentage points.

Lenders that offer streamlined refinances in the future shouldn’t be required to consider the borrower’s income or employment status, the MBA argued.

“The documentation requirements to verify these factors slow down the approval process for borrowers who have already shown the ability to make larger payments,” MBA said in the letter.

It would likely take some time for any rulemakings the CFPB pursues to be effective, given the extended nature of drawing up new regulations. Not many Americans are refinancing their mortgages now, anyway. Rising interest rates have weighed on refinance volume in 2022. Volume is down almost 70%, according to the CFPB.

The MBA expressed less enthusiasm at the prospect of automatic refinances, which would allow consumers to pay a premium to take advantage of declining interest rates. The products could be difficult to price or sell in the secondary market, and they could attract borrowers who believe they’re less likely to qualify for a cheaper refinance that’s traditionally underwritten, the MBA said.

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