Borrowers can benefit from electronic closings when navigating the mortgage closing process through understanding the process better, completing electronic forms more efficiently, and gaining more empowerment, compared with borrowers who just use paper forms.
These are the conclusions of research conducted by the Consumer Financial Protection Bureau.
“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,” says CFPB Director Richard Cordray. “We expect this pilot project and its findings to help inform further innovation that will be a win-win for consumers and industry alike.”
Commenting on the CFPB report, ICBA President and CEO Camden Fine says in a statement: “While electronic mortgage closing may have benefits, to improve the closing experience for consumers, policymakers should also address the extraneous documents that consumers must sign. As relationship lenders, community bankers thoroughly explain the closing process to borrowers, but the process remains frustrating for borrowers and lenders alike because of the excessive regulatory paperwork.”
Electronic closings rely on technology for borrowers to view and sign closing documents electronically. Benefits can include faster delivery of the documents and embedded links to help consumers understand specific terms as they encounter them.
While eclosings are already happening in the market today, adoption is low. 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.
Specifics from CFPB project
The project found that eclosings were associated with:
• 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.
• More efficient process. The study found a 17% positive difference in scores for borrowers using eclosings compared to borrowers using paper documents.
• Greater consumer empowerment. The study found a 15% positive difference in the scores for the eclosing borrowers compared to borrowers using paper documents.
The study also found that the consumers who showed the best results on all three measurements of empowerment, efficiency, and understanding received and reviewed their closing documents in advance of the closing meeting. This was regardless of whether the paperwork was received electronically or through paper copies. CFPB believes using an eclosing process can facilitate faster document delivery.
The study is not part of a rulemaking process, CFPB says, but rather was initiated to promote best practices. CFPB will continue to work collaboratively with all stakeholders, including other regulators, to implement its new rule for mortgage disclosures and improve the mortgage closing experience for consumers.
CFPB’s 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. About 1,200 surveys were completed.
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