In 2014, the Consumer Financial Protection Bureau (“CFPB”) initiated an eClosing pilot program. The eClosing pilot was intended to assist the CFPB in evaluating the use of electronic records and signatures in the residential mortgage closing process. The pilot program has now been completed and on August 5, 2015 the Consumer Financial Protection Bureau (“CFPB”) released a report detailing its findings (“Report”). In the Report, the CFPB indicates that eClosings present a significant opportunity to enhance the closing process for both consumers and the mortgage industry.
The pilot program focused on the mortgage closing process and measured borrowers’ (i) understanding (both perceived and actual) of the process, (ii) perception of efficiency, and (iii) feelings of empowerment. The program also sought to quantify objective measures of process efficiency. The program was conducted over four months in 2014 with seven lenders, four technology companies, settlement agents, and real estate professionals. About 3000 borrowers participated in the study – roughly 1200 completed the CFPB’s survey.
The CFPB sought to determine if an electronic closing process improved the borrowers’ (i) understanding of the transaction, (ii) perception of efficiency, and (iii) feeling of empowerment. These three criteria were measured in multiple ways. To gauge understanding, the borrower was asked about their perceived understanding of the terms and fees, costs, and their rights and responsibilities. To determine the borrower’s actual understanding of their mortgage, they were given an eight question quiz. Five questions were about mortgages generally and three about their mortgage, specifically. To evaluate the efficiency of the transaction, the CFPB measured the difference between eClosings and paper closings in terms of delays, errors in documents, and the time required between steps in the process. Borrowers were also asked about their perceptions concerning efficiency. Finally, in order to gauge the borrower’s feeling of empowerment, the CFPB asked about the borrower’s feelings of control, his or her role, and the role(s) of others in the process.
Among the key findings of the survey cited by the CFPB:
- eClosing borrowers felt more empowered, had better perceived and actual understanding of the transaction, and perceived the process as more efficient than a paper-based closing;
- Delivery of closing documents prior to closing, in particular, improved consumer’s feeling of empowerment and enhanced their perceived and actual understanding of the transaction; and
- eClosing borrowers tended to have shorter closing meetings and a shorter time frame from clearing the closing documents until the actual closing.
The CFPB also stated that the eClosing pilot provided insights into practical issues affecting the success of the eClosing process, and expressed the hope that these insights would assist the mortgage industry in further improving the process. The CFPB’s observations included:
- Certain documents were often still signed on paper because of technology platform limitations, questions about eSignature risks, and the limited availability of electronic notarization services.
- Hybrid closings (part electronic and part paper) caused some confusion among lenders and investors, and more guidance from investors on the subject of hybrid closing would be desirable.
- The large number of stakeholders in the mortgage lending process created coordination and acceptance challenges – some ancillary service providers were resistant to the process changes required by eClosings.
- Mapping closing document packages to eClosing processes proved to be an ongoing challenge during the pilot.
- Settlement agents and closing attorneys appeared to have a significant learning curve when first being introduced to eClosings.
The Report signals the CFPB’s ongoing support for continued development and deployment of eClosing processes. The Report concludes:
Borrowers experiencing eClosing scored higher on average than those experiencing paper closings on many of our measures of perceptions of empowerment, understanding, and efficiency, which suggests that eClosing can be a valuable option for consumers. In particular, eClosing seem to serve as a vehicle to help facilitate two other drivers of empowerment, understanding, and efficiency at closing: early document review and easy integration of educational materials.
However, the Report also calls upon the mortgage industry, as it moves forward, to conduct further research on the impact of eClosings on the borrower’s experience.