Digital Satisfaction

0216_DigitalSatisfaction_770

Electronic mortgage closings promise ease and efficiencies

By Howard Schneider

After conducting research with mortgage lenders and borrowers, the Consumer Financial Protection Bureau is touting the benefits of using a digital mortgage closing process.

3 Borrower Benefits

The Consumer Financial Protection Bureau interviewed borrowers undergoing an electronic mortgage closing process alongside borrowers who experienced a paper-based process. The CFPB found that so-called eClosings tend to promote three benefits:

1. Better borrower understanding: Consumers who closed loans electronically generally understood the mortgage closing process—including costs and charges—better than those customers closing mortgages with paper documents.

2. Smoother process: Electronic mortgage closings appeared to generate fewer delays or document errors than paper-based closing processes.

3. Greater borrower empowerment: Consumers involved in an electronic closing process generally felt more in control of the lending process than those consumers involved in a paper-based process. Consumers involved with digital closings felt they had more time to review documents, ask questions and state concerns.

“Results of the pilot [research project] indicate that those who closed their mortgage using an electronic platform are generally better off on measures of understanding, efficiency and feeling empowered than borrowers who used just paper forms,” the CFPB stated in a prepared release.

Blanco National Bank, based in Blanco, Texas, took part in the eClosings pilot project examining electronic closing software systems, which followed seven mortgage lenders as they worked with more than 3,000 borrowers. The $180 million-asset community bank has been closing home loans electronically for five years.

“I wouldn’t know how to do a paper closing,” quips Neal Brodbeck, the bank’s senior vice president.

Community banks initially may want to adopt electronic signature technology with emailed mortgage disclosures, Brodbeck says. Consumers then just need to click an “accept” button to legally sign the forms. Software authenticates each borrower’s identity to prevent fraud. Recording when documents were received and when they were signed also creates an audit trail for compliance purposes.

Electronic signature technology from industry software developers, dubbed eSigning for short, is useful but adding eClosings produces greater benefits, Brodbeck says. Because many lenders “are retooling their [mortgage] process” to implement the new Loan Estimate and Closing Disclosure forms, he suggests community banks take this opportunity to start closing loans electronically.

Software ensures loan files are complete before allowing a closing to proceed, eliminating the need for staff to follow up on files post-closing, Brodbeck says. “That’s a huge cost savings.”

Loan closings can be completed in 20 minutes, according to Brodbeck, because borrowers already have read the emailed documents at home. Obtaining signatures on many pages also isn’t required. One click on a tablet computer finalizes closings at Blanco National, Brodbeck explains.

Community banks should investigate eClosing and eSigning technology by talking with their loan origination software or document preparation provider, suggests Ron Haynie, ICBA’s senior vice president for mortgage finance policy. Smaller lenders can adopt the scalable technology as readily as large banks can, he notes.

Market forces will encourage lenders to adopt eClosings, believes Haynie, who hopes the CFPB will refrain from making them mandatory down the road. Yet they’re “absolutely beneficial for community banks,” because eClosings ensure compliance while providing a superior customer experience, he says.

Find Out More

Obtain the Consumer Financial Protection Bureau’s study on electronic mortgage closings, “Leveraging technology to empower mortgage consumers at closing,” on its website at www.cfpb.gov.

Community banks seeking “to be small and nimble” will find that offering eClosings “clearly gives them an advantage,” Haynie says. “It’s the way of the future,” he adds, because the process produces “completely error-free closings.”

He notes that lenders also are using eSigning tools to let consumers open accounts online.

Closing mortgages electronically may be a “bumpy” ride at first, according to Brodbeck. But lenders quickly pick up the technology, and the electronic process can be mastered by the time a community bank does its fifth electronic mortgage closing.

At that point, says Brodbeck, “you’ll never go back to paper again.”


Howard Schneider is a freelance financial writer in California.

Top