As interest rates drop, the CFPB is exploring ways to streamline mortgage rules to make the refinancing process easier and closing costs less expensive, Director Rohit Chopra said at a housing conference sponsored by the Center for American Progress.

 “When an existing or competing lender is seeking to refinance a loan with a much lower rate for a substantially similar mortgage, it may not be worthwhile for the lender to repeat many of the steps that were taken during the purchase process,” Chopra said. “We are especially interested in the costs and time taken to refinance a mortgage that are exclusively related to complying with federal mortgage law, rather than steps that are demanded by investors.”

He said the CFPB will be looking for ways to “jumpstart competition” for various closing costs, which he said can help spur refinancing activity. However, he said that the CFPB cannot accomplish that goal alone.

“Lower closing costs lowers the barrier to entry for refinancing and makes refinancing more appealing to a broader swath of homeowners, especially for low- and moderate-income homeowners,” he said.

Chopra said that to prepare for the easing of interest rates, the CFPB has launched an effort to find ways to encourage more mortgage refinancing. The bureau, according to Chopra found that many homeowners face a “looming crisis,” cancellation and large premium increases for homeowners insurance. Chopra said that climate change, natural disasters and severe weather has led to large increases in the premiums that insurers charge. In addition some insurers are declining to renew policies altogether.

While the trend started in California, Louisiana, and Florida, that trend is now spreading nationwide, Chopra said. He said that some insurers are increasing their rates by between 30% and 60%.

“This pull back by insurers is driven, in part, by rising reinsurance costs – that is, the cost insurers pay to other financial companies to reduce some of their own risk,” he added, noting that the reinsurance companies that “sit behind” insurance companies are raising their costs and pulling back on insurance.

He said that the CFPB regulates the process by which mortgage servicers are permitted to enroll a homeowner into expensive insurance with limited coverage when their policy is canceled. He added that while that does provide some protection, it does not address the spiraling increases in insurance rates and its long-term impact on housing and the economy.

“As more homeowners are thrown off private plans and move to the limited public insurance plans offered in many states, state budget capacities could be pushed to the limit by future losses,” Chopra said. “I believe this problem will require greater involvement from financial regulators, housing policymakers, and fiscal authorities at the state and federal level.”

Chopra said that a comprehensive approach could include actions to lengthen the term of insurance policies to help avoid problems homeowners face when their policies are up for renewal. He added that a federal insurance or reinsurance program could address market failures.

The federal government’s National Flood Insurance Program, Terrorism Risk Insurance Program, and Crop Insurance Program “may provide both positive and cautionary lessons in thinking through a state-federal solution to this impending catastrophe,” Chopra said.

He added that as policymakers struggle with dealing with the insurance issues, the CFPB has proposed rules designed to streamline the process for homeowners to modify their mortgages when they face distress

“Under our proposed rules, servicers would have to focus on helping borrowers – instead of foreclosing – when homeowners can’t make their monthly payments. This means servicers would have to stop dual track actions – taking steps both toward foreclosure and to help them – and would limit the fees they could charge borrowers, while they review possible options to help struggling borrowers,” Chopra said.

Chopra failed to mention that the CFPB’s ability to repay rule lacks the concept of a streamlined refinance loan, which is common with Federal Housing Administration (FHA)-insured mortgage loans. Various standard origination requirements do not apply to FHA streamlined refinance mortgage loans, based on the changes to the loan being limited to a lower rate and new loan term, which results in a lower monthly payment. Incorporating such a concept into the CFPB’s ability to repay rule could lower origination costs. 

Director Chopra also does not expressly address that the CFPB has no authority to regulate the business of insurance, which principally a matter of state regulation.