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From Banking and Finance Law Daily, April 23, 2014

CFPB lists consumer mortgage closing “pain points,” advocates electronic closing solutions

By Richard A. Roth, J.D.

Having adopted final integrated mortgage loan disclosure forms, the Consumer Financial Protection Bureau has decided that the next step in its “Know Before You Owe” project should be simplifying the mortgage loan closing process for both consumers and the financial services industry. The bureau has issued a report on problems encountered by consumers at loan closings and is looking for lenders and technology service providers that are willing to participate in a pilot of electronic closing systems, which it terms “eClosings.”

Report findings. According to the CFPB, the information it collected from consumers while preparing its report revealed three major “pain points”:

  1. Consumers feel they do not have enough time to review the documents and are being pressured to sign documents they do not understand.
  2. There are too many documents to review and sign.
  3. The documents are complicated, “full of legalese and technical jargon,” and often contain errors that must be corrected, which delays the closing process.

Some of these problems will be alleviated by the new mortgage consumer protection rules, the CFPB says. However, while consumers will receive the new Closing Disclosures at least three business days before closing, they still might not see other documents until the closing begins.

The CFPB report, “Mortgage Closings Today,” says there are two main causes of these problems. First, the large number of disclosure regulations imposed by different levels of government, when added to the documents required by lenders, results in a large, complex package of documents. Second, the number of stakeholders and the lack of uniformity across transactions lead to confusion and errors.

The bureau says that its goal is “a more efficient, consumer-friendly process.” There are two broad solutions that could move closings toward that goal: eClosings, and reducing and simplifying the closing package. However, as the bureau concedes it has little ability to change the closing package because so many of the documents are out of its control, it has decided to concentrate on eClosings.

eClosings. eClosing means “a mortgage closing that relies on technology for stakeholders to view and/or sign document electronically,” the bureau says. eClosing solutions move closings toward being paperless by using electronic documents, electronic delivery, electronic signatures, electronic closing activities, electronic notarizations, or electronic document storage.

Benefits. The CFPB believes that eClosings would benefit both consumers and the industry. Consumers could receive documents earlier, which would give them more time to study and understand the documents or consult with professionals if doing so was necessary. Educational tools could be embedded in electronic documents that would facilitate this understanding. Also, electronic document storage would be available that would give consumers access to the documents whenever they wanted, throughout the life of the loan, without the need to find their paper copies.

Remote closings would be easier, the CFPB says, which would help consumers who had difficulty attending a closing in person. Also, there would be an increase in the consistency and accuracy of the entire process.

Lenders would benefit by increased efficiency and reduced cost, the bureau says, when dealing with either consumers or secondary market investors.

Electronic closings will not, by themselves, correct all of the problems that have been identified, the CFPB admits. However, eClosing technologies could be used to provide explanations, furnish documents earlier, eliminate process steps, and reduce errors. Some eClosing solutions already are available and in use, the report points out, and some of those are fully electronic except for the requirement of a “wet ink” signature on the note and mortgage.

Risks. However, eClosings also could increase some risks for consumers, the bureau concedes. Consumers may be tempted to simply “click through” documents rather than reading them, which would result in reduced understanding.

Also, there are long-term risks related to electronic document storage. A consumer’s computer could crash or a password could be lost, which would interfere with access. Software could become outdated over the long life of a mortgage loan. Also, hacking remains a threat to the personally identifiable information that is contained in closing documents.

Barriers to adoption. There are barriers to eClosing solutions, but most apply to one aspect or another of the process, not to all aspects. Varying state laws can pose problems, as can the inability consistently to record documents electronically and the absence of industry-wide data standards. Fannie Mae and Freddie Mac have different electronic signature requirements, the report notes.

Pilot guidelines. The CFPB is looking for pilot program participants that comprise a partnership between an eClosing solution technology provider and a lender that has agreed to use that technology. Alternatively, a lender using its own technology can participate in the pilot. The bureau has published pilot guidelines that set out the required minimum functionality of the technology. The guidelines also describe advanced features the bureau would like to examine.

The pilot is intended to generate results that will be released to the public. Since the bureau intends to target its research, the guidelines provide that tests, test groups, and the minimum number of loans will be established by the CFPB, and that lenders will need to help the bureau obtain information from the consumers through interviews or surveys.

MainStory: TopStory ConsumerCredit CFPB Loans Mortgages RESPA TruthInLending

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