Borrowers that close their mortgage using an electronic platform typically have a greater understanding toward the process and are more efficient and empowered, compared to those that take the paper route.
The Consumer Financial Protection Bureau (CFPB) published a report Wednesday on its “Know Before You Owe” electronic closing (eClosing) project. The report determined that borrowers can benefit from electronic closings when wrapping up their mortgage closing process, the last step before consumers are contractually obligated to their loan.
“While technology alone will not address all consumer concerns in the closing process, our study showed that eClosings do offer the potential to make the process less complex,” said Richard Cordray, CFPB director. “We expect this pilot project and its findings to help inform further innovation that will be a win-win for consumers and industry alike.”
The CFPB conducted this new study of seven lenders and consumers who closed loans with these lenders following their April 2014 research that identified the major pain points within the closing process. This 2014 study found that consumers felt like they did not have enough time to review the documents, felt overwhelmed by the stack of complex paperwork, and complained about finding errors in the documents.
According to the CFPB, eClosings were chosen as a solution to address some of these pain points. Electronic mortgage closings rely on technology for borrowers to view and sign closing documents. This could mean faster delivery of the documents and embedded links to help consumers understand specific terms as they come across them.
The CFPB pointed out that although eClosings are happening in the market today, many companies are not adopting this practice. The CFPB believes that the eClosing process has "the potential to give consumers more time to review closing documents while also providing them with educational tools that can help them navigate the closing process more successfully."
"Closing on a mortgage remains one of the most significant, yet stressful, times in the lives of consumers," Director Cordray said. "However, this report offers promise that technology could be an important tool to break down a complex process into one that is easier to understand. We know that much work and further study lies ahead. We envision a world where most of the mortgage transaction is facilitated by technology, and where consumers have adequate time to review documents and access tools to help them break down the complexity of the process."
The CFPB's eClosing study released today is the latest component of the CFPB’s “Know Before You Owe” mortgage initiative, which is designed to improve the home-buying experience for consumers and will take effect October 3, 2015. The new regulation implements the use of two less complex documents: the Loan Estimate and Closing Disclosure forms. The closing disclosure form offers a detailed accounting of the transaction and must be delivered to the borrower three days before closing.
Better consumer understanding: The study found a 7 percent positive difference in perceived understanding scores for borrowers using eClosings compared to borrowers using paper documents.
A more efficient process: The study found a 17 percent positive difference in scores for borrowers using eClosings compared to borrowers using paper documents.
Greater feelings of consumer empowerment: The study found a 15 percent positive difference in the scores for the eClosing borrowers compared to borrowers using paper documents.
The study also found that consumers that reviewed their closing documents before the closing meeting had better measurements of empowerment, efficiency, and understanding.