The mortgage closing process can be a daunting and confusing one for borrowers. But there’s hope for those navigating the process and it comes in the form of eClosings.
The Consumer Financial Protection Bureau (CFPB) recently published a report on its “Know Before You Owe” eClosing project which found that borrowers can benefit from electronic closings when going through the mortgage closing process. The results indicate that those who closed their mortgage using an electronic platform are generally better off on measures of understanding, efficiency, and feeling empowered than borrowers who used just paper forms.
In April 2014, the CFPB identified three major pain points associated with the closing process, the last step before consumers are contractually obligated to their loan: consumers felt like they did not have enough time to review the documents, consumers felt overwhelmed by the amount of complex paperwork, and consumers complained about finding errors in the documents. With these consumer sentiments in mind, the CFPB identified eClosings, as one solution to address some of these pain points. Electronic closings are mortgage closings that rely on technology for borrowers to view and sign closing documents electronically. Benefits include faster delivery of the documents and embedded links to help consumers understand specific terms as they come across them. Although adoption is low for these types of transactions, the CFPB believes that the eClosing process has the potential to give consumers more time to review closing documents while providing educational tools that can ensure successful navigation of the closing process.
CFPB Director Richard Corday said, “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. 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 project found that eClosings were associated with better consumer understanding of the process and associated loan information, a more efficient process that positively changed consumers’ perceptions of delays and document errors, and greater feelings of consumer empowerment that made consumers feel like they were in control and comfortable to take a more active role in the process.
The released report is a component of the CFPB’s “Know Before You Owe” mortgage initiative, which is designed to improve the home-buying experience for consumers, and was initiated to promote best practices in the marketplace. The “Know Before You Owe” mortgage disclosure rule will take effect in October 2015 and requires two redesigned, easier-to-use mortgage disclosure forms that clearly lay out the terms of the loan for a homebuyer. The first is the Loan Estimate, which provides a summary of key loan terms and estimated loan and closing costs. The second is the Closing Disclosure, which offers a detailed accounting of the transaction.
Do you have any experience with eClosings? What is your take on them? We’d love to hear from you.
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