CFPB Report Hints at Future Role of eClosings

by devteam August 8th, 2015 | Share

Over a year ago consumers pointed out, in a report from thernConsumer Financial Protection Bureau (CFPB) the “pain points” they encountered inrnthe mortgage closing processing.  Thernvolume, complexity and lack of accuracy of the required documents were majorrncomplaints and appeared amplified by a lack of time to thorough review thoserndocuments.  </p

At thatrntime CFPB identified electronic closings, also known as eClosings, as one way tornalleviate some of these pain points.  These closings rely on technology to permit borrowersrnto view and sign closing documents electronically.  Under such a system documents can be deliveredrnto the consumer faster and contain embedded links to help them understandrnspecific terms as they encounter them.  </p

eClosingrntransactions are already available but their utilization remains low.  CFPB recently conducted a four-month pilotrnproject to find how effectively they assisted borrowers through the closingrnprocess.  The project involved sevenrnlenders, more than 3,000 consumers, four technology companies, and manyrnsettlement agents and real estate professionals.  During the project some consumers usedrntraditional paper documents, others used a complete eClosing process, andrnothers used a hybrid of electronic resources and paper documents. </p

Borrowersrnwho completed mortgage transactions during the pilot were invited to complete arnfollow-up survey which questioned consumers about their actual knowledge andrnunderstanding of the process, and how they felt about it. The written surveyrnwas followed up with one-on-one interviews. About 1,200 surveys were completed. </p

The survey results were released on Wednesday.  The project found that those who closed theirrnmortgage using an electronic platform are generally better off on measures of understanding,rnefficiency, and feeling empowered than borrowers who used just paperrnforms. </p

Specifically,rnthe project found that eClosings were associated with: </p<ul type="disc"

  • Better consumerrn understanding:  Consumers were asked about loan informationrn such as terms and fees and if they understood any justifications regardingrn differences between quotes and final costs.  The study found a 7 percent positivern difference in perceived understanding scores for borrowers using eClosingsrn compared to borrowers using paper documents. </li
  • A more efficientrn process: The surveyrn asked consumers about the efficiency of the process including their perceptionsrn about delays, errors in the documents, and the time between importantrn steps. There was a 17 percent positive difference in scores for borrowersrn using eClosings compared to borrowers using paper documents. </li
  • Greater feelingsrn of consumer empowerment: Thern CFPB asked consumers how empowered they felt after the process; whetherrn they felt they had control over it or felt able to play an activern role.  They were also queried aboutrn having sufficient time to review the documents, ask questions, and flagrn concerns.  The study found a 15rn percent positive difference in the scores for the eClosing borrowers.  </li</ul

    Thernstudy also found that the consumers who showed the best results on all threernmeasurements of empowerment, efficiency, and understanding received andrnreviewed their closing documents in advance of the closing meeting. This wasrnregardless of whether the paperwork was received electronically or throughrnpaper copies, though CFPB believes using an eClosing process can facilitaternfaster document delivery. </p

    “Whilerntechnology alone will not address all consumer concerns in the closing process,rnour study showed that eClosings do offer the potential to make the process lessrncomplex,” said CFPB Director Richard Cordray.  “We expect this pilotrnproject and its findings to help inform further innovation that will be arnwin-win for consumers and industry alike.” </p

    Thernreport on the pilot project is available here.  CFPB stressed that the pilot project and thernreport on its outcome are not part of the rulemaking process but rather anrnattempt to promote best practices.

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  • About the Author


    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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