CFPB: Buyers aren't shopping around for a mortgage

Americans may be spending more time shopping for clothes than a mortgage according to a new report from the Consumer Financial Protection Bureau (CFPB), which also released a new "unbiased" tool to help consumers shop for a mortgage. The regulator claims its new "Owning a Home" tool helps borrowers find the best rates in their area based on data the CFPB gathers from lenders.

The education tool is a part of the CFPB's Know Before you Owe mortgage initiative announced in November 2013. The campaign’s loan disclosure documents were created in an effort to more efficiently lay out mortgage terms for homebuyers and include two new forms: the Loan Estimate and the Closing Disclosure to ensure compliance.

According to new data in the National Survey of Mortgage Borrowers, almost half of consumers do not shop around for a mortgage when purchasing a home. Based on the study, the CFPB's latest report found that informed consumers are more likely to shop, especially if they are familiar with available mortgage rates.

“Our study found that many consumers are not shopping for a mortgage. Consumers put great thought into the choice of a home, but the mortgage process continues to be intimidating,” said CFPB Director Richard Cordray. “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 CFPB's report also found:

• Three out of four consumers only apply with one lender or broker: While half of consumers shop around to see who advertises lower rates, fewer than one out of four borrowers actually end up submitting a loan application to more than one lender or broker. These consumers are not filling out applications with multiple lenders to see which one can offer them the best deal. 
• Most consumers get their information from lenders or brokers, who have a stake in the outcome: The survey asked recent mortgage borrowers whether they used different information sources. Respondents were asked to report whether they used each source a lot, a little, or not at all. Consumers could pick multiple categories. Among the findings: 70% of consumers report relying on their lender or mortgage broker a lot to get information about mortgages. While lenders and brokers can be valuable resources, they have a stake in the selling of the mortgage, so what is best for the lender or broker is not always best for the consumer. 
• Borrowers who prioritize the terms of the loan over the characteristics of the lender are more likely to shop: The survey asked borrowers whether characteristics of lenders or mortgage brokers were “very,” “somewhat,” or “not at all” important in their selection. The survey found those who listed lender characteristics as important, instead of the loan terms, are less likely to shop. Specifically, the survey found that among all borrowers – those who shopped and those who did not – 42% said having an established banking relationship with the lender is “very important.” Since most borrowers probably only have a few banking relationships, this likely inhibits shopping. 
• Informed consumers are twice as likely to shop: Consumers who are confident in their knowledge about the mortgage process are more likely to shop around. For instance, consumers who are confident about their knowledge of available interest rates are almost twice as likely to shop as consumers who are unfamiliar with available interest rates. The survey found that 55% of shoppers said they were very familiar with mortgage rates, while 30% of shoppers said they were not at all familiar. 

Failing to shop means money lost for consumers, according to the CFPB. "Consumers who consider the product offerings of multiple lenders or brokers may save substantial sums," the report stated.