On August 5, 2015, the Consumer Financial Protection Bureau (CFPB) published a report titled “Leveraging technology to empower mortgage consumers at closing,” which concluded that borrowers can benefit from electronic closings or “eClosings” – that is, closings in which a borrower can view and sign documents electronically. According to CFPB Director Richard Cordray, “Using the power of technology has shown the potential to simplify the closing process and empower consumers with better organized information, more time to review that information, and the ability to embed educational resources.” Cordray went on to emphasize that “Closing on a mortgage remains one of the most significant, yet stressful, times in the lives of consumers. 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.”
The report 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. It comes on the heels of a 2014 report that outlined “the major pain points” associated with the mortgage loan closing process, which included lack of sufficient time to review closing documents and feeling overwhelmed by the scope and breadth of the documents. The CFPB identified electronic closings, also known as eClosings, as a method for addressing some of these concerns, and thereafter initiated a pilot program to study the matter.
According to the CFPB, the pilot project “took place over a four-month period and involved seven lenders, more than 3,000 consumers, four technology companies, and many settlement agents and real estate professionals. Some consumers used traditional paper documents, others used a complete eClosing process, and others used a hybrid of electronic resources and paper documents. Borrowers who completed mortgage transactions during the pilot were invited to complete a follow-up survey.” Ultimately, about 1,200 surveys were completed and analyzed. The CFPB summed up the report with the following findings:
- Better consumer understanding: The CFPB measured whether consumers felt like they understood the process. The CFPB asked consumers questions about important loan information, such as the terms and fees. And it asked consumers if they understood the justifications for any differences between quotes and final costs. 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 survey asked consumers about their perceptions of how efficient the overall process was. This included their perceptions about delays, errors in the documents, and the time between important steps. 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 CFPB asked consumers how empowered they felt after the process. The survey asked consumers to respond to statements such as, “I felt I had control over the closing process” or “I felt empowered to play an active role in my closing process.” Other questions asked about having sufficient time to review documents, ask questions, and flag concerns. The study found a 15 percent positive difference in the scores for the eClosing borrowers compared to borrowers using paper documents.
According to the CFPB, while the report was not part of any official rulemaking process, it was “initiated to promote best practices in the marketplace.” Given the report’s findings, the mortgage lending industry should expect more CFPB focus on eClosings in the future.
The full report on the pilot project is available here.