Over a year ago consumers pointed out, in a report from the Consumer Financial Protection Bureau (CFPB) the "pain points" they encountered in the mortgage closing processing. The volume, complexity and lack of accuracy of the required documents were major complaints and appeared amplified by a lack of time to thorough review those documents.
At that time CFPB identified electronic closings, also known as eClosings, as one way to alleviate some of these pain points. These closings rely on technology to permit borrowers to view and sign closing documents electronically. Under such a system documents can be delivered to the consumer faster and contain embedded links to help them understand specific terms as they encounter them.
eClosing transactions are already available but their utilization remains low. CFPB recently conducted a four-month pilot project to find how effectively they assisted borrowers through the closing process. The project involved seven lenders, more than 3,000 consumers, four technology companies, and many settlement agents and real estate professionals. During the project 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 which questioned consumers about their actual knowledge and understanding of the process, and how they felt about it. The written survey was followed up with one-on-one interviews. About 1,200 surveys were completed.
The survey results were released on Wednesday. The project found 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.
Specifically, the project found that eClosings were associated with:
- Better consumer understanding: Consumers were asked about loan information such as terms and fees and if they understood any justifications regarding 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 the efficiency of the process including their perceptions about delays, errors in the documents, and the time between important steps. There was 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; whether they felt they had control over it or felt able to play an active role. They were also queried about having sufficient time to review the documents, ask questions, and flag concerns. The study found a 15 percent positive difference in the scores for the eClosing borrowers.
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, though CFPB believes using an eClosing process can facilitate faster document delivery.
"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," said 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."
The report on the pilot project is available here. CFPB stressed that the pilot project and the report on its outcome are not part of the rulemaking process but rather an attempt to promote best practices.
