The steady ramp-up in loan closing requirements reached a head this year with the implementation of new lending guidelines—and a report from the Consumer Financial Protection Bureau (CFPB) shows Americans are fed up.
As part of its "Know Before You Owe" initiative to streamline mortgage lending, CFPB released Wednesday the results of a year of research on the closing process, including comments collected from both consumers and market participants. The findings indicate frustration all around.
"Mortgage closings are often fraught with anxiety," said CFPB Director Richard Cordray. "We have taken action to address some of the problems consumers face, but more needs to be done."
Among consumers, the most common complaints the bureau saw dealt with the complexity and sheer amount of paperwork required to finalize a loan.
Adding to the frustration is the relatively short amount of time consumers had to review all the documents before signing, often because a delay on the part of a lender or other agent creating a ripple effect. As one respondent expressed, "[S]ince the loan documents showed up at the last minute, I had no choice but to sign, even though the terms were different than was promised."
CFPB found every consumer interviewed would prefer to receive loan documents at least two days prior to closing. (Under the agency's proposed rule, loan stakeholders would be required to provide consumers with their new closing disclosures at least three business days in advance, though that rule doesn't apply to additional paperwork added at the closing table.)
Also of concern to consumers and settlement agents was the number of errors in closing documents, which can create additional delays as the package is redone. In some cases, respondents said they had to correct misspelled names as the paperwork progressed, only to find out they were misspelled differently at closing.
Among industry participants, common frustrations included a lack of standardization among closing packages and perceived legal risk as they seek to protect themselves from regulatory or litigious actions.
Brian Benson, CEO of closing services firm ClosingCorp, sees firsthand the struggle lenders deal with as they work to make the closing process as painless as possible.
"We talk to a lot of clients out there. I know they're working really, really hard," he said. "I think the biggest thing they’re struggling with is interpretation."
With lenders working in an uncertain market and cutting staff to ease cost burdens, Benson says the best strategy is for companies to "control the pieces they can control"—i.e., good practices and good technology partners.
CFPB agrees, which is why the bureau also released Wednesday guidelines for its upcoming "eClosing" project designed to "provide valuable insight into how to improve the closing experience for consumers," Cordray said.
Through the pilot program, CFPB says it hopes to evaluate whether electronic closings can increase efficiency and consumer understanding in order to minimize surprises at the closing table.
In order to participate in the pilot, interested firms are required to submit proposals as a partnership between a technology vendor providing closing solutions and a lender utilizing those solutions. Specifically, the agency says it is looking for eClosing features that enhance consumer understanding, incentivize early document review, and facilitate error detection to avoid costly delays.