The Consumer Financial Protection Bureau (CFPB) has revealed the vendors and lenders that will be participating in its mortgage e-closing pilot program, which will explore the viability of developing a standard process for closing mortgages using technology.
The CFPB has been working with key industry players on the development of e-mortgage technology and processes for months now. The e-closing – which is just one part of the e-mortgage – is widely considered to be a final hurdle in the development of a standardized, end-to-end, e-mortgage process.
The main difference between an e-closing and a traditional, paper-based closing is that the documents used in an e-closing are in electronic format and the parties involved no longer need to be physically in the same room (at the ‘closing table’), as they can now interact and collaborate via real-time communications, such as video conferencing, and share documents via the Internet.
One of the main advantages of the e-closing for lenders is that it streamlines the closing process, thus making it more efficient and less costly. Whether these cost savings will ultimately be passed onto consumers in the form of lower closing costs – or if the lenders and their technology partners will be the sole beneficiaries of these efficiencies – remains to be seen.
One of the main advantages of the e-closing for consumers is that it will be more streamlined and thus will take less time to complete. What's more, it provides an opportunity for borrowers to gain a better understanding of the terms and costs associated with their mortgage, prior to signing any documentation, as they will have more time to review the documentation. In using the Internet to facilitate the exchange of documentation and information, it is hoped that consumers will have more time to ask questions and gain a clearer understanding of the terms of their loans.
The CFPB has already taken a giant step toward the advent of the e-closing with the development of its new ‘Know Before You Owe’ mortgage initiative, which includes the development of new, electronic mortgage disclosure forms that more clearly lay out the terms of a mortgage for a home buyer.
This includes the Loan Estimate, which provides a summary of the key loan terms and estimated loan and closing costs, and the Closing Disclosure, which offers a detailed accounting of the transaction. The new forms and related rules are set to go into effect on Aug. 1, 2015.
A central question to the initiative is whether consumers will be more inclined to review closing documents if they are presented in electronic format – and if this, in turn, will help them gain a better understanding of the terms and conditions of their loans. One of the main challenges with traditional e-closings is that the borrower is seeing many of the paper-based documents – some of which are dozens of pages thick – for the first time, yet the consumer often does not have the time to review and understand the documents when they are at the closing table.
The development of a standardized e-closing process also brings about concerns related to security – for example, having multiple parties interacting and exchanging documentation across numerous networks could open the door to infiltration by hackers looking to steal sensitive information. In addition, there are concerns that bringing the closing process completely into the cyber realm could open the door to fraud – for example, if a borrower is sitting a computer and completing the closing process remotely, will the other parties involved be able to confirm the borrower's identity?
Technology vendors participating in the e-closing pilot include Accenture Mortgage Cadence; DocMagic, Inc.; eLynx; Pavaso, Inc.; and PiersonPatterson, LLP. Creditors involved in the pilot include Blanco National Bank; Boeing Employees Credit Union; Franklin First Financial, Ltd.; Flagstar Bank; Mountain America Credit Union; Sierra Pacific Mortgage; and Universal American Mortgage Co.
In a similar project, the CFPB is also working to improve the loan application process, exploring ways that technology can help consumers interpret and evaluate loan offers.
To view the CFPB's e-closing pilot guidelines, click here.