CFPB Launches Pilot Program for Electronic Mortgage Closings

WASHINGTON — The Consumer Financial Protection Bureau unveiled a new pilot program on Wednesday designed to allow consumers the ability to electronically review and file mortgage closing documents.

The agency simultaneously released guidelines for how lenders could participate in the program, dubbed eClosings, saying it could help consumers who have complained closing documents are too complex and they don't have enough time to review them.

"These new homeowners leave the closing table with a whole new level of anxiety, as they find themselves wondering what was buried in the stack of paper that may create some nasty surprises in the years ahead," said CFPB Director Richard Cordray during a field hearing in Washington. "We are unveiling new research on the challenges that consumers face in the closing process and identifying potential solutions. One of these potential solutions may be found in the eClosing pilot project that we are announcing today."

Some lenders already offer an electronic closing option but the CFPB said "adoption is low" and there is a lot of misinformation in the marketplace about it.

Cordray said the goal of the pilot program is to see whether the eClosing process would reduce costs and errors, increase consumer understanding of documents and give them more time to review documents to ultimately reduce surprises at the closing table.

However, he also acknowledged there may be issues with eClosings, such as data security risks in using electronic signatures or consumers feeling prompted to just click through documents without reading them.

"So we do not want innovation to come at the expense of consumers. Any electronic closing process that diminishes their ability to act in their own self-interest will raise serious concerns for us," Cordray said. "But we aim to incentivize eClosing processes that will give consumers the opportunity to review documents in their home in advance, along with educational materials to promote greater understanding, while still retaining the option of reading them at the closing ceremony, where the final and most crucial decisions are ultimately made."

Representatives of the government-sponsored enterprises and trade groups selected to speak at the field hearing largely praised the CFPB's initiative to help encourage eClosings on a much broader scale. Many of them have already looked at or started offering an eClosing option, such as accepting electronic signatures.

"We really applaud the CFPB's efforts in this space," said Meg Burns, the senior associate director of the Office of Housing and Regulatory Policy at the Federal Housing Finance Agency. "We think that these efforts are actually quite critical to market recovery, to advancing housing finance reform, whether or not there's ever legislation."

Still, some groups offered a word of caution to the CFPB, including a consumer advocate on the panel who said there are still segments of homebuyers who either do not have a computer or hardly use the Internet and tend to be more susceptible to online fraud.

"I hope that you recognize that this might, unless carefully tailored, could be a pickle for fraud against those consumers who are not sophisticated," said Margot Saunders, of counsel at the National Consumer Law Center. "The whole world has not yet looked into the web … please don't create system that will be so much less expensive that the people on other side of the regional divide will be disadvantaged."

Cordray said the agency plans to launch the pilot project in the coming months and the first phase will include participants who are already offering an eClosing option to consumers.

The study and eClosing guidelines are part of the CFPB's "Know Before You Owe" mortgage initiative, which has previously included a rule requiring new, simpler disclosures for mortgage estimates and closings. The rule also requires that consumers receive the relevant disclosure documents at least three business days prior to closing. That rule goes into effect August 2015.

"Our new closing disclosure form helps address some of these issues because it is shorter and consumers have told us that it is much easier to use and to understand," Cordray said. "We believe the eClosing process may allow this form to stand out even more for consumers than if it is buried somewhere in a mound of paperwork."

Still, the agency said it needs to do more to address the cumbersome process for closing a mortgage since the incoming rule does not apply to other paperwork that consumers receive.

"The consumer bureau itself has authority only over a few of the items in the closing stack. The rest will require other stakeholders to make a commitment to help effectuate change," Cordray said. "And everyone involved needs to embrace the central idea that consumers should feel empowered and not undermined by the closing process."