Closings need less paperwork, says 69-page CFPB report

by Ryan Smith24 Apr 2014
The Consumer Financial Protection Bureau says mortgage closing documents desperately need streamlining – and it only took 69 pages to say it in.

The CFPB today issued a 69-page report on the need to cut down the paperwork required at closing. The current massive pile of documents is too complex and may cause borrowers to overlook last-minute changes that could add hidden costs.

“We are well aware of the frustrations that consumers feel when they walk into their mortgage closing and face a tall stack of detailed documents,” CFPB Director Richard Cordray wrote in his introduction to the report. “I have heard these concerns during my time as Director of the CFPB and while in public office in Ohio – and I have experienced them myself as a homeowner.”

Cordray also quoted former Deputy Secretary of the Treasury Neal Wolin on his closing experience: “The documents are literally impenetrable. …Here I was — former general counsel of the Treasury, former general counsel of a Fortune 100 financial services company — asking my lawyer to help me through 100 pages of incomprehensible, turgid gobbledygook.”

“This much is clear to me: the package of closing documents is too large, and the process is overly complex and stressful for consumers,” Cordray wrote.

However, the report found that the problem wasn’t entirely one of ever-multiplying federal forms. In a 40-page closing packet, there were just seven pages of federal forms and two state forms. More than 20 pages, the report found, were from the lender.

“In some cases, lenders’ risk management processes have prevented them from streamlining closing packages,” the report stated. “Lenders generally add documents, as a result of legal risk assessments, to protect themselves during foreclosure proceedings and to ensure the loans are sellable on the secondary market.”

The report recommends moving toward e-closings, in which the borrower can review documents online and sign them electronically up to three days prior to the settlement date. E-closings would also allow borrowers to receive online training to help them understand the closing process. However, although Fannie Mae has been accepting e-closings since 2000, just 10% of mortgage lenders surveyed in 2013 offered them, according to the report.

“…We believe that there may be opportunities to leverage technology in order to solve some of the issues that cause frustrations for both consumers and professionals in the mortgage closing process,” Cordray wrote. “Specifically, we hypothesize that technology-enabled electronic closing (eClosing) solutions have the potential to reduce errors, limit surprises, lessen anxiety, and create more time and opportunity for consumers to understand their mortgage and make more informed decisions.”


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