CFPB Urges Industry to Quickly Adopt Electronic Closings

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WASHINGTON — The Consumer Financial Protection Bureau has ramped up its push for the mortgage industry to switch to an electronic closing process after results from a pilot program showed consumers favored it over in-person mortgage closing.

During a CFPB forum Wednesday about the results of a four-month pilot program, Director Richard Cordray repeatedly said that the eClosing process is a "win-win" for consumers and the industry. The agency found that consumers who tried it were more likely to give higher positive feedback scores on their understanding of the closing process, the efficiency of it and a sense of personal empowerment than the borrowers surveyed who used the traditional paper process.

"This is something that we think is the direction industry is intending and wanting to go. It is the future. But the future can be here much sooner than maybe it otherwise would be" and "we are on board with that," Cordray said. "We think the advantages for industry, the efficiencies and accuracy that this kind of process will create can also incorporate some really consumer-friendly aspects, consumer education and the like. And on the whole, [it] can be a win-win on both sides of the closing table."

Cordray received applause from the audience attending those events for those unscripted opening remarks, which he acknowledged "doesn't normally happen."

The panelists of industry and consumer advocates who participated in the pilot program were largely supportive of switching to an eClosing process with the caveat that it would be difficult to get all mortgage-related parties involved, particularly the title settlement providers, real estate agents and vendors.

"We've got to remember that we've got multiple stakeholders. We've got sellers to consider, we have real estate agents to consider and educating everyone as a part of the process," said Tiffany Bertling, senior vice president of the business systems and processes at North American Title Group.

But none seemed as resistant as Melvin Watt, the director of the Federal Housing Finance Agency, who reluctantly embraced the idea of electronic mortgage closings despite his personal resistance to technology.

"We subscribe to this even though I might not use it personally as the old guy on the block," said Watt during closing remarks at the forum.

Watt recalled the days when he typed up closing documents on a typewriter as a real estate lawyer.

"It's hard for me to come to grips with the notion that you can have closings without actual people there and do it all electronically so in that sense, I'm a counter-intuitive choice to be giving these closing comments" but "I did evolve with the process, although they brought me dragging and screaming and kicking into this electronic age," Watt said. "This is going to be the future of real estate closings in this country and so we all have to get ready and one important process for getting ready is this pilot program that starts to prepare the industry, the stakeholders … and most importantly, borrowers for what they're getting into."

Watt said Fannie Mae and Freddie Mac are "comfortable" with moving forward in the direction of an eClosing process but he encouraged the CFPB to look at a hybrid process in which people who may not have Internet access can still use the traditional paperwork process while there is an option to do so electronically.

"We can't abandon the regular paper process but a pilot that smooths out a lot of these issues and doesn't apply to everybody, and doesn't apply to a one-size-fits-all to every consumer and borrower, is critically important in moving in that direction," Watt said.

From the three lenders' perspective on the panel, only one had not already instituted an eClosing process before the pilot launched: Sierra Pacific Mortgage. Jim Connell, Sierra's chief information officer, said they did receive "some occasional resistance" from settlement agents at the start but have since gotten all parties on board. The lender plans to launch the eClosing process fully onto its platform by next year.

"It took a lot of muscle" to set it up, Connell said. But "this is indeed a win-win experience for both the consumers and the lenders. And that's what we learned."

Specifically, the CFPB noted that consumers who used the eClosing process marked 7% higher in positive feedback in terms of their understanding of the quotes and final costs of the loan. They also found that consumers felt less rushed and the process was more efficient when closing documents were sent electronically rather than being read and signed in-person at the closing table.

While consumer groups on the panel were in favor of an eClosing process, they also brought up the most concerns with regard to the pilot results and overall security for consumers when they are signing documents and sending it electronically.

For example, a panelist from the Center for American Progress called into question the "empowerment" part of the survey in which the CFPB said borrowers who used eClosing scored higher when asked whether they felt more in control of the process. Consumer advocates argued that there are larger issues for consumers in understanding the mortgage process that are not necessarily fixed by updated technology.

"I don't really see the empowerment as an outcome. It's a feeling, it's a perception that's important. But I really wanted to know whether pilot participants — did they identify changes in terms that you normally wouldn't see them identify? How did they react when presented with unexpected things," said Julia Gordon, senior director of housing and consumer finance at the Center for American Progress. "I didn't really see most of the changes of actual knowledge [by the consumer] in this pilot to be the places where I saw anything that appeared really all that significant … So I am not sure that technology is really the only answer to that and we need to work on all of these other fronts as well."

Patricia McClung, the CFPB's assistant director for the office of mortgage markets, acknowledged this concern, promising to continue to do more research on eClosings.

"We all saw too [that] when you look at the report, you didn't see as much actual knowledge as what we would have liked to have seen. And part of it is people may have opened things and not spent quite the time" as they should have on it, McClung said. "So I think we have a lot to all learn and that's why we're advocating for more research to be done. To better figure out ways to make it sticky and figure out ways to make it really land well."

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