In an age when many daily transactions are done electronically, the mortgage closing process has remained stubbornly stuck in the 20th century.
Fannie Mae first announced it would accept electronic mortgages in 2002, but the vast majority of mortgage closings still happen the old-fashioned way — with homebuyers manually signing large stacks of paper in a closing office.
This is true even though the Electronic Signatures in Global and National Commerce Act laid the legal groundwork for the use of e-records and e-signatures way back in 2000. But the situation finally could be about to change.
Last year, the Consumer Financial Protection Bureau conducted a comprehensive pilot to study the benefits and drawbacks to electronic closings for mortgages. The results of the “Know Before You Owe” study were generally positive for the eClosing process. In the pilot study, eClosing borrowers scored higher than paper borrowers when it came to empowerment at closing, perceived understanding of the closing process and closing efficiency.
Simplifying a complex process
“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,” CFPB Director Richard Cordray said in a news release about the study’s findings. “We expect this pilot project and its findings to help inform further innovation that will be a win-win for consumers and industry alike.”
There are many potential benefits of moving toward an electronic mortgage closing process, according to the CFPB. First, it will speed up the process considerably by allowing for faster delivery of the closing documents. Fannie Mae estimates an electronic mortgage process could shorten the closing time by 30 days and save $1,100 on an average mortgage, or a total of about $1 billion per year.
With eClosings and electronic document management, the loan disclosure process can be fully automated and provide an electronic audit trail. Proponents say the process also provides for improved transparency in terms of when loan officers deliver the documents to borrowers and when borrowers view and sign documents.
Also, eClosings make it easier for lenders to provide homebuyers with educational tools, such as embedded links in mortgage documents, that can help them better understand and navigate the closing process. A CFPB report released in 2014 found that borrowers often felt overwhelmed by the huge pile of complex paperwork they faced at the closing table.
Cordray said the bureau was “pleased, but not surprised” by another important finding of the eClosing pilot. Consumers who reported the best results often were those who received and reviewed their closing documents before the closing meeting.
“Early document delivery and review was associated with better measured outcomes in both paper and eClosing transactions, but the early delivery of documents occurred much more consistently in the eClosings we analyzed during the study,” Cordray stated in the report.
More than 3,000 homebuyers, seven lenders and numerous settlement agents and real estate professionals participated in the four-month CFPB pilot program last year.
Jim Connell, chief information officer for Sierra Pacific Mortgage, located in Folsom, Calif., one of the lenders that participated, said there still is resistance in the industry to electronic closings. “The biggest hurdle is getting settlement agents and notaries trained and onboard with eClosings,” Connell said.
“Settlement agents have to learn and be trained on all the different eClosing vendors’ platforms — there’s not just one way of doing it,” he added. “So we saw some resistance to change among them in the pilot. I understand this because settlement agents and notaries want to make sure they’re doing everything the right way.”
Connell sees major benefits for both lenders and consumers once everybody’s on board with the change. “The electronic platform results in a faster and more efficient settlement experience for everyone,” he said. “There’s not an inch-thick stack of papers waiting for borrowers to sign. They can be out the door in 20 minutes if they review the documents ahead of time.”
Michael Farris, a senior vice president with Digital Delivery, which provides technology for eClosings, said lenders and settlement agents are much more aware of electronic mortgage closings because of the CFPB pilot. “As a result, I think we’re going to see a lot more eClosings in 2016 as mortgage originators start to adapt their processes,” he said.
Farris said a major benefit of eClosings for lenders is improved customer satisfaction.
“Consumers want this,” he said. “They’re used to electronic transactions and signing things electronically. eClosing is a faster, cheaper and easier process and it’s also environmentally friendly. We have done thousands of eClosings over the past decade so we know that it works.”
Freelance writer Don Sadler contributed to the writing and research of this article.