[1]Closing on a home can be an exciting but frustrating process, but recent innovations in mortgage technology have made the process much easier through electronic loan document delivery.
Freddie Mac's VP, Loan Advisor Suite Sam Oliver [2] explained some of the problems that homebuyers tend to run into when purchasing a home and how lenders can overcome some of the grief by using eDocuments.
One piece of regulation where eDocuments would be especially handy is the Consumer Financial Protection Bureau's (CFPB) TILA-RESPA Integrated Disclosure (TRID) rule, which went into effect October 2015.
"From Freddie Mac's perspective, originating loans with electronic loan documents isn't an all-or-nothing proposition," Oliver stated. "You choose the starting point that's right for you and your business."
Freddie Mac says that the mortgage closing process is stressful on borrowers because:
- Not enough time. Too often, homebuyers weren't getting their final loan documents until just before sitting down at the closing table. There wasn't time to read everything–much less understand it all.
- Too much paperwork. Borrowers said they were overwhelmed by the sheer amount of paperwork required at closing. And different lenders had different ways of doing things, and differing requirements.
- Too hard to understand. If the would-be homeowners managed to work through all the jargon and legalese (and found someone at the closing table who could answer any questions they raised, which wasn't always easy), they often reported finding errors in the forms – which could lead to delays when a closing package had to be redone entirely.
In August 2015, the CFPB released a study that explained how eClosings would benefit consumers [3], because 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.
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," CFPB Director Richard 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 said that eClosings offer buyers:
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.
"Electronic loan documents, eClosings, and eMortgages may be the wave of the future, but those first waves of change are already lapping at the shore," Oliver concluded. "At Freddie Mac, we're here to guide you through the "e-volution" and to help you and your homebuyers begin enjoying the tangible benefits of a digital transaction."