The Consumer Financial Protection Bureau (CFPB) deplores the fact that almost half of the home buyers it recently surveyed did not shop for a mortgage but dealt with a single loan provider. To encourage shopping, the agency has developed a “Check Interest Rate” tool. It advises borrowers: “As you start talking to lenders, compare their offers to the rates in the tool to see if you are getting a good deal.”
My advice to borrowers: ignore the CFPB tool, it is completely useless. The tool a borrower needs is a “shopping rate”, a rate that a competing lender should match or better. CFPB shows a distribution of rates, and leaves it to the shopper to decide which rate in the distribution is the shopping rate, while providing no guidance on how to do it.
For example, given the loan features I entered on Feb. 10, CFPB told me that “In Pennsylvania, most lenders in our data are offering rates at or below 4.188%.” But two lenders in the distribution charge 4% and one charges 3.75%, so should a shopper look for 4.188%, 4% or 3.75%? That is not clear. A valid shopping rate depends on a number of factors that CFPB does not consider.