ALTA CEO Michelle Korsmo participated in a public forum held by the Consumer Financial Protection Bureau on Wednesday, April 23 to discuss efforts to improve the mortgage closing process.
Check out Michelle's remarks and answers to a few questions:
The event kicked off with featured remarks by Director Richard Cordray. Housing and Urban Development Secretary Shaun Donovan concluded the event with additional comments.
Along with the forum, the CFPB released a report that finds many consumers are frustrated by the short amount of time they have to review a large stack of complex closing documents when finalizing a mortgage. As part of that research, in January 2014, the Bureau published a Request for Information about the challenges consumers face when closing on a home.
The request asked for input from market participants, consumers, and other stakeholders on ways to encourage the development of a more streamlined, efficient, and educational closing process that would be beneficial to consumers.
The Bureau heard about three major pain points for consumers during the closing process:
- Not enough time to review: Many consumers are frustrated by the short amount of time they have to look over the closing documents. Often, they do not see the paperwork until they arrive at the closing table. Consumers reported feeling pressure to rush through the paperwork and sign—even when they did not understand the terms.
- Overwhelming stack of paperwork: When consumers close on a home, they often face stacks of paperwork. Some of the forms are intended to help consumers better understand the costs and risks of their mortgages. Other forms are included by lenders as a result of their legal risk assessments. Remaining forms may fulfill federal, state, and local government requirements. The volume of paperwork varies from lender to lender.
- Complexity of documents and errors: Most closing documents are full of legalese and technical jargon. The terms and acronyms are unknown to most consumers. In addition to having little time to read through and understand a large stack of paperwork, consumers often complained that they had little help from the others in the room. Consumers also mentioned that they found errors in their closing documents. Those errors often led to delays as closing agents had to redo the entire closing package.
In its report, the CFPB provided this interesting graphic that shows two sample closing packages and which parties were responsible for the documents.
E-closings Pilot Project
The CFPB identified electronic closings as one solution to address the pain points outlines in its report. E-closings are already happening in the market today, but adoption is low. There is a lot of misinformation about the legality and feasibility of e-closings.
In addition to its pain points report, the CFPB released guidelines for a pilot project to study e-closings. The pilot project, which will launch later this year, is designed to enable the CFPB to better understand the role that e-closings can play in addressing consumers’ pain points.
Details on how to apply to be a participant in the e-closing pilot project are available in the Broad Agency Announcement.
The CFPB said e-closings can lead to a more knowledgeable consumer experiencing a better, more efficient process. However, e-closings may also present risks to consumers. For example, switching to an electronic process could reduce the amount of time consumers spend reading the closing documents and actively engaging in the process:
Here's graphic that the CFPB included in its report on mortgage closings that depicts an example of a potential end-to-end e-closing process
ALTA members strongly support efforts to identify and alleviate the pain points consumers have experienced during the home closing process. While we are focused on technology and the ability to receive, sign and return, and retain electronic documents, it's important to not lose sight of the importance of personal interaction during the closing process.
"At the end of the day, consumers are not buying a home from a computer,” Korsmo said during the panel discussion. “Improving the closing the process through technology by providing electronic documents to the homebuyer will help give the consumer more to time to digest the information about their purchase prior to the closing. We agree with the CFPB that any implementation of new technology in the home closing process should not reduce opportunities for consumers to ask information or replace the ceremony of the closing process which indicates the importance of the transaction. Based on our members’ unique vantage point working with all the parties at the closing table, the Bureau should not only focus on technological innovations but also on improving consumer education about the closing process. The new integrated mortgage disclosure forms that the CFPB developed and will be implemented in August 2015 will help ensure the personal interaction and explanation remains part of the closing experience for consumers.”
ALTA looks forward to continuing to work on this important initiative with Director Cordray and staff at the CFPB on this important consumer initiative.
Because e-losings offers both benefits and risks, the CFPB’s pilot project will evaluate whether electronic closings can increase efficiency, consumer understanding, and minimize surprises at the closing table. The guidelines list the minimum functionalities required of potential participants and highlight some advanced features the CFPB will be looking to test in the pilot. Pilot participants must submit proposals as a partnership between a technology vendor providing an e-closing solution and a lender that has contracted to close loans with that solution.
The CFPB will work with participants to test many e-closing features, including those that may:
- Enable consumer understanding: The CFPB plans to test whether educational materials like document summaries, term definitions, or process explanations that can be reviewed prior to the closing table help 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 plans to study the various technologies that would let consumers see the entire package of closing documents ahead of time. Within this pilot, the Bureau would like consumers to have at least three business days prior to closing to review the stack of documents. The Bureau wants to evaluate how early review of the documents 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. Such a tool could help consumers easily find the differences between their original estimate and their closing disclosures, preventing last minute surprises.
If interested in appying to be a participant in the e-closing pilot project, check out the Broad Agency Announcement.