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CFPB Leading the Way on E-Close

JUN 12, 2014 2:05pm ET
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Last week, I wrote about my travel experience, specifically about how digital boarding passes are now widely available, even if the federal government hasn't quite caught up with the technology. I received a lot of excellent commentary from the industry on that column, much of it from executives who told me that going digital was a key priority for them, especially as it relates to upfront disclosures. A lot of people told me they would be working on that this year, if they haven't already rolled it out.

Our clients who have rolled it out related e-docs acceptance rates of up to 90%, which drives the borrower through the disclosure process quicker, and makes it easier to understand fees, figures and documents. Of course, that just gets the process started and there has been very little progress as an industry in the way of e-closings.

So, this week I will explore the issue of e-closing and about how our friends at the CFPB may be helping drive adoption.

First, a little look back in history. My personal refinance was one of the first electronic closings in 1999 (yes, last century) in Broward County, Fla. This pilot program was a partnership between mortgage.com (may it rest in peace), Aurora (also resting in peace) and Fannie Mae (still alive and kicking). My wife and I signed all the documents on a signature pad, well before iPads were even available. She was impressed, and suddenly had new found respect for the mortgage industry. It was very slick, very cool and very expensive. But in the dot-com age, that was what we were looking for.

In any case, after we spent a few minutes and accepted the documents on the cool pad device, we then proceeded to have to sit there and sign each of the pieces of paper (hundreds of them) "as a backup." You see, at that time, you needed a wet signature on all the docs too, so we were firmly stuck in the world of belt and suspenders. My wife was no longer impressed, since the e-closing we did actually took longer than a normal one. I tried to explain to her how valuable it was that we had participated in such a historic event, and how the money spent by mortgage.com on this amazing pilot program was going to pay off someday. Well, maybe that day is coming soon.

One of the most popular stories on NationalMortgageNews.com this week has been the CFPB's plans to solve the problems that borrowers are having with the mortgage loan closing process through the use of technology. According to the bureau, consumers complain about not having enough time to review the documents, facing an overwhelming stack of paperwork at the closing table, having trouble understanding the documents they are being asked to sign and seeing too many mistakes in the closing documents.

The CFPB believes that the answer to all of these problems lies in taking the paper completely out of the transaction and closing electronically.

To test it, the CFPB is making plans now for an e-closing pilot program for later this year. The CFPB said it hopes the pilot will (1) help explain key terms, the closing process, and important documents, (2) give borrowers more time to review the stack of documents before closing, and (3) help borrowers find and fix errors in the documents prior to closing.

I was visiting with Tim Anderson about this the other day. If you know him, you know that he's a Mortgage Technology Steve Fraser Award winner who has been a long-time advocate of electronic lending. Unlike me, Tim may have even been successful in convincing his wife of the value of electronic closings.

Tim is director of e-services for DocMagic, a company that has been offering electronic delivery and fulfillment of mortgage documents, including upfront disclosures, for a long time. Tim told me that more lenders than ever before are offering electronic disclosures to their borrowers. And a lot of borrowers are opting to receive them, review them and sign them electronically.

So, if a lot of borrowers are doing the initial disclosures online, then I am sure these borrowers are naturally going to migrate to electronic closings, if offered. In fact, if they are not offered, the consumers are going to think the process is sort of disconnected, and have reactions like my wife who will wonder why she had to sign documents when the electronic versions are so much easier to read and understand.

The CFPB has not made any announcements yet as to who will participate, but firms like DocMagic are almost certain to be front and center (Tim would neither confirm nor deny, but did offer me one of his DocMagic business cards). The story about the pilot program got a lot of readers on the National Mortgage News website and Tim, like me, is glad the idea is proving to be so attractive to lenders.  After all, as he points out, the bureau will begin enforcing a new requirement around closing disclosures in August of 2015 and Tim insists that "The same technology that exists to support e-disclosures today can be applied to e-closings as well."

At Stratmor we do extensive research on consumer satisfaction of the mortgage process. Based on research of over 10,000 consumers, customers who close at the rates, fees and costs that they expect are far more satisfied than those who are surprised at closing. So, it's not just good compliance to get it done correctly, it's also good business, as it generates more satisfied customers and more referrals.

For most of my career, we've talked about how our industry is behind the technology curve and so rarely on the same page as our regulators. It's nice for once to be moving toward a technological solution that is likely to benefit everyone—and one that the federal government actually seems to understand. Maybe the next time I get a home loan, I will even be able to impress my wife.

Comments (2)
Electronic closings done right would be really fast! I can't help but wonder if borrowers are really "complaining" about the closing time and paper, or if they simply are answering an inquiry from the cfpb. Paper signing takes about 30 minutes, if there is a lot of visiting, an hour. The closer I use explains each document. With e-closings the borrower will have to read and interpret documents.

It does not take long to "e-sign" but how long will the reading take and how comfortable will the borrower be, or how much longer will it take if they have to call closers, L O's, etc for explanations? Will they understand the need to sign right away the same day?

Bottom line they will need to understand they sign the docs or they don't close. I see the new complaint.... "I e-signed but have no idea what I signed. Then the cfpb will have to fix that. E-signing is great for us in the industry, but not sure it is an improvement for the borrower.
Posted by DORA G | Friday, June 13 2014 at 10:35AM ET
Griff: I think the use case that e-closing proponents are envisioning is one where borrowers have the ability to review documents ahead of time so they can spend more time reviewing them, have more opportunity to think about any questions they might have, and get any questions answered during the closing ceremony -- rather than expecting the borrower to walk into the closing already knowing everything they need/want to know.

Obviously, not all borrowers will take advantage of that ahead of the closing. But at the same time, the more streamlined process of an e-closing ceremony presents an opportunity for real estate, mortgage and title professionals to provide an even greater level of customer service and support in their roles as borrowers' trusted advisors, further enhancing the value of people like the closing professional you work with. And of course, better customer experience = greater chance for borrowers' repeat business and client referrals.
Posted by Austin K | Friday, June 13 2014 at 12:35PM ET
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