The mortgage closing table is the site of considerable pain and confusion for homebuyers, Richard Cordray, Director of the Consumer Financial Protection Bureau (CTFP) told a Mortgage Closing Forum on Wednesday.  They find themselves confronted with reams of documents while facing one of the most important financial commitments of their life.  They are frustrated not only by the sheer volume but by the speed at which they must review those papers and their complexity.   

"Mortgage closings are often fraught with anxiety," the Director said. "We have taken action to address some of the problems consumers face, but more needs to be done."  He announced results of a study done by CFPB on "closing table pain points" and an eClosing pilot project the Bureau hopes will provide insight into improving the process.

The report and some guidelines announced at the forum are the latest components of the CFPB's "Know Before You Owe" mortgage initiative.  In November 2013, the Bureau released two new easier-to-use mortgage disclosure forms, a Loan Estimate, which provides a summary of the key loan terms and estimated loan and closing costs and a Closing Disclosure, which offers a detailed accounting of the transaction.  Cordray said that just this week the new forms won the Center for Plain Language's Grand ClearMark Award for clear, concise communication, beating out submissions from private industry, nonprofits, and other government agencies.   These forms and the rule governing their use (still under development) will be implemented in August 2015.

In January CFPB published a Request for Information asking consumers about the challenges they face when closing on a home and for feedback from other market participants on ways to encourage the development of a more streamlined, efficient, and educational closing process.  Respondents told the Bureau about three major pain points for consumers during the closing process:

  • Not enough time for review: Many consumers do not even see the paperwork until they arrive at the closing table. Cordray told the Forum that consumers feel pressure to rush through the paperwork and sign without understanding the terms of the deal. "In interviews, we heard that many consumers said they do not manage to read most of what they are signing. Even those who said they start off reading the documents confessed that they stop reading by the end of the stack."
  • Overwhelming volume of paper: While some of the forms are intended to help consumers better understand the costs and risks of their mortgages the volume can vary from transaction to transaction because closing documents and practices are not uniform. Cordray said two people could be closing on the same type of loan, for the same amount, in the same location, but one may only have 40 pages of documents while the other has 100 pages or more. Sometimes the only difference is the lender they use. Some forms are included by lenders as a result of their legal risk assessments, others may fulfill federal, state, and local government requirements.
  • Errors and Complexity of documents:Most closing documents are full of legalese and technical jargon with terms and acronyms unknown to most consumers. In addition to having little time review and understand the large volume of paperwork, consumers said others in the room provided little help. There were often errors in the paperwork which led to delays as closing agents had to redo the entire closing package.

According to CFPB, the undeniable result is information overload:  "people find that there is just too much to absorb during the closing process, which may cause them to shut down.  Industry members agreed as well.  One settlement agent told us 'there are far too many redundant papers and it is overwhelming for most borrowers.  There is so much to digest in the stack of paperwork, and so little time to go through it, that many borrowers do not even bother trying.'"

Cordray said that when the Know Before You Owe mortgage rule takes effect, it will address some of these challenges. For example, consumers will receive their new Closing Disclosure at least three business days in advance of closing.  But the Bureau only has jurisdiction over a few forms in the closing stack and thus no control over how and when the others are presented to consumers.

CFPB has identified electronic closings, also known as eClosings, as one solution to address these pain points. eClosings are already happening in the market today, but few lenders have adopted them and there is a lot of misinformation about their legality and feasibility.  CFPB announced guidelines at the Forum for a pilot project later this year to study eClosings.

eClosings can lead to a more knowledgeable consumer experiencing a better, more efficient process but switching to an electronic process could also reduce the amount of time consumers spend reading the closing documents and actively engaging in the process.  The pilot project will evaluate whether electronic closings can increase efficiency, consumer understanding, and minimize surprises at the closing table.  CFPB's guidelines for the pilot provide minimum functionalities required of potential participants and highlight some advanced features the CFPB will be looking to test. Participants must submit proposals as a partnership between a technology vendor providing an eClosing solution and a lender that has contracted to close loans with that solution. 

The CFPB will work with participants to test many eClosing features, including those that may: 

  • Enable consumer understanding: The Bureau will test whether educational materials like document summaries, term definitions, or process explanations available in advance can improve the process for consumers. The Bureau also plans to evaluate whether the order of the documents changes the consumer experience.
  • Incentivize early document review: The CFPB will look at the various technologies allowing consumers to see the entire document package ahead of time and evaluate how an early review may impact the closing process.
  • Facilitate error detection: The CFPB wants to test tools that will help both industry members and consumers spot errors and discrepancies in the closing documents.

Cordray said electronic documents can make early delivery more convenient and simple and give the consumer time to review documents, consult with family, professionals, and the lender.   They also offer a way to embed links to educational materials for reference both before and during the closing.   An automated processes can also make it easier to detect discrepancies potentially mitigating a big source of consumer frustration.

eClosings also have the potential to reduce costs.  Document delivery costs, the costs of paper and storage could all be lessened.  Cordray said one leading title company said a typical mortgage closing generates about 6,000 pieces of paper.  The company's paper and storage costs are $20 to 30 million annually - costs that can be significantly reduced through automated processes.  As this company moves into electronic documentation, those costs are steadily being reduced and some of these savings can and should be passed along to consumers.

Corday acknowledged that innovation can create new risks, "So we do not want innovation to come at the expense of consumers."  Any electronic process that diminishes consumers' ability to act in their own self-interest will raise serious concerns and merely switching to an electronic process may not necessarily increase the time consumers spend reading and understanding the documents.  "But we aim to incentivize an eClosing processes that will give consumers the opportunity to review documents in their home in advance, along with educational materials to promote greater understanding, while still retaining the option of reading them at the closing ceremony, where the final and most crucial decisions are ultimately made."

He emphasized that security and fraud should not be a particular concern as lenders can easily establish a repository of electronic documents for each closing and the process should not be designed in ways that deprive consumers of control over decisions that might have to be made at the last minute at the closing table. 

The pilot project, which will take place over the 15 months before Know Before You Owe goes into effect, will work with lenders who are already offering eClosing solutions to explore how best to facilitate and secure the benefits of this approach.  Cordray said the pilot is not a rulemaking process.  "Instead it is a potential 'win-win' effort to work with all stakeholders to ensure that consumers understand the commitment they are making and experience a more transparent, efficient, and effective process."

Participants in the eClosing pilot project must already be offering an electronic option to their customers.  CFPB will test educational tools and materials like document summaries, definitions, process explanations, and checklists that consumers can review before the closing.  The Bureau wants to find out what helps consumers become more informed and to see whether the order of the documents has an effect on the experience.  Ideally the consumer would receive the entire package of documents at least three days ahead of the closing.  Will the extra time affect the process?  Do consumers feel less pressure?  Are errors less common?  Does the process create more satisfaction for each of the stakeholders?  Cordray said the Bureau plans to identify best practices that they can share industry wide to benefit consumers.

The complete report on mortgage closings is available at: