As we previously reported, the CFPB is moving to the next phase of its “Know Before You Owe” initiative and held a forum on the mortgage closing process in Washington, DC on April 23, 2014. Although the CFPB promoted the event as a discussion of the findings of their consumer survey on challenges of closing on a mortgage, the forum actually focused on shifting the mortgage industry toward an electronic mortgage closing process.
CFPB Director Richard Cordray delivered the opening address, stating that the consumer survey had helped the CFPB identify the “biggest pain points” for consumers closing on a mortgage:
- Not enough time to review the paperwork
- Overwhelming stack of paperwork
- Documents are hard to understand
- Errors in the documents
The first phase of the CFPB’s “Know Before You Owe” initiative, the development of the Loan Estimate and Closing Disclosure, along with accompanying rules requiring that the Closing Disclosure be made available to consumers three days in advance of closing, is supposed to alleviate some of the frustrations consumers feel on settlement day. As we have reported, the new disclosure forms and accompanying rules will take effect in August 2015.
However, Director Cordray said that “more needs to be done,” and pivoted the focus of the event to launching a new eClosing mortgage pilot project that “will provide valuable insight into how to improve the closing experience for consumers.” With an October 2014 target start date, the pilot’s goal is to “reflect the spirit” of the “Know Before You Owe” rules by exploring opportunities within eClosing and testing educational tools that may benefit consumers.
Director Cordray emphasized that the “pilot program is not part of a rulemaking process, but designed to promote best practices in the market place.”
Although the CFPB offered only a preliminary look at the role of technology in reshaping the closing process, the eClosing pilot would enable the broad use of electronic signatures, which are governed by the Electronic Signatures in Global and National Commerce Act (“ESIGN”) and the Uniform Electronic Transaction Act (“UETA”). The Standards and Procedures for Electronic Records and Signatures (“SPeRS”) serve as the guidelines for designing systems for electronic transactions under ESIGN and UETA.
Following Director Cordray’s remarks, a panel of industry leaders addressed the benefits of eClosing. Among the advantages discussed, the panelists noted that eClosing would create a more convenient and streamlined closing process and decrease delays and costs for both consumers and lenders alike. The panelists also stated that eClosing would create an eVault to retain documents, which consumers could access during the life of the loan.
In addition, the panel noted that barriers still remain for industry-wide implementation of eClosing. For example, the panel expressed concern that it is difficult to create a uniform compatible system due to the number of players involved and the fragmentation of certain parts of the industry. Additionally, panelists believed that prevalent eClosing myths, such as concerns that eNotes are not legally valid, eMortgages are not enforceable, and eMortgages are not fast and easy to transfer, must be dispelled in order to provide a greater level of confidence for consumers, lenders, and investors in the integrity of the eClosing process. Panelists also noted that lenders are reluctant to convert to eClosing because many local jurisdictions do not yet have eRecording capabilities.
Along with a report on the current state of mortgage closings, the CFPB also issued guidelines for the eClosing pilot project at the forum. The guide lists the minimum functionalities required of potential participants and outlines features the CFPB wants to test in the pilot.
As the CFPB launches its eClosing pilot, it will be interesting to see whether the mortgage closing forum marks a new chapter in industry efforts to move to a paperless closing process, or whether the broad adoption of eClosing will remain an elusive goal. The funding needed for local recording jurisdictions to develop and implement eClosing capabilities, and concern of such jurisdictions regarding potential loss of revenue from the recording process, may pose significant obstacles.