What the outlook for closing cost rules looks like

In recent discussions about housing affordability, closing costs have taken a back seat to pricier expenses, but they have long been shaped by a regulatory framework that may see changes this year.

The Consumer Financial Protection Bureau launched an inquiry last year looking into why these costs have been growing and how they could be lowered as part of its broader scrutiny of small financial industry fees.

Whether or not that kind of effort will continue at the CFPB is an open question, as many speculate that the transition to a largely Republican White House and Congress could lead to deregulation.

"I don't know that I expect that singular focus to continue, although Trump also has made some comments around trying to drive more affordable housing," said Justin Wiseman, vice president for residential policy and managing regulatory counsel at the Mortgage Bankers Association.

One challenge any CFPB director would have in addressing the issue is that the bureau "hasn't had the authority, except in very limited cases that are largely irrelevant to what we're talking about, to explicitly limit mortgage closing costs," he said.

"I hesitate to make predictions, but I'd hazard to guess that it's not the top of Congress' agenda with tax reform and everything else on the horizon," Wiseman added.

Another big question regarding closing costs is whether the complex disclosures around the expenses, which are linked in part to a core piece of industry legislation called the Real Estate Settlement Procedures Act, could be subject to deregulation.

While the documentation was aimed at helping consumers get a better handle on closing costs and was deemed effective to that end, operationalizing the time-sensitive and complex disclosures was a regulatory burden and had a hefty price tag for the industry

Near the end of the first Trump administration in 2020, the bureau (led then by former Director Kathy Kraninger) engaged in a five-year lookback at the integrated disclosures' implementation under the Truth in Lending Act and RESPA with an eye toward possibly adjusting policy.

The CFPB found on a per-loan basis implementation cost lenders $146 per loan, and closing companies $39. But the bureau also said the ongoing costs from TRID were less clear, and Wiseman said rolling back the disclosure regime definitely would be expensive.

"This industry has spent hundreds of millions of dollars at this point developing processes around documents like the loan estimate, and it would be very hard and extremely costly to sort of unwind that," he said.

That said, things like fee estimates on the affiliated business disclosure that less accurately cover the same ground as TRID documents are unnecessary and could be removed, according to a report written by Wiseman and others.

"A lot of the costs could be reduced in the affiliated business arrangements, recommendations that we outline," said Alicia Sears, senior analyst in the Conference of State Bank Supervisors' policy development group, who also contributed to the report on RESPA's Section 8.