The eClosing Pilot Project was created by the Consumer Finance Protection Bureau (CFPB) with the goal of making the mortgage closing process more efficient and less painful to the consumer through paperless procedures.
It has roots in the federal Dodd-Frank legislation, which required a single disclosure for mortgage loans combining documents from the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). The CFPB's "Know Before You Owe" project was initiated to address these concerns.
During this project, the CFPB found significant frustration for both lenders and consumers, and concluded that two broad solutions could improve the process. The first is a collective simplification and reduction of the paperwork involved in a closing package, and the second is streamlining the process through electronic closing methods (or eClosing), requiring eSignatures.
Recognizing the massive undertaking of the first challenge, the CFPB wisely focused on the second one for 2014. The targeted start date for the program is October 2014.
eClosing processes are available today with some smaller lenders and sufficiently capable title companies. The eClosing Pilot Program is attempting to increase acceptance of this process, combining it with feedback to find out what is and is not working, and setting general expectations. The focus is clearly on consumers – but how does this program affect them?
In the short term, not much – except that participating in an eClosing pilot exchange and sharing your experiences and insight can help to steer the CFPB in the right direction. There are no current financial incentives for consumers to participate in the program, unless lenders and title companies lower their price based on increased efficiency – and that will not happen right away.
In the long term, integrating eClosing with simplified paperwork is intended to help you in several ways – easier loan status tracking and documents that are provided to you earlier and with easier-to-understand explanations so you can fully comprehend all documents prior to signing. Theoretically, the process could allow for remote e-closings – for example, making it more convenient for military members deployed overseas or the disabled to close on their mortgages.
Increasing eClosing acceptance may be difficult for several reasons:
- Coordination of All Parties – Not only does this require technology vendors, title companies and lenders that have compatible (if not integrated) systems, it requires an accepting infrastructure for recording eDocuments at the county government level.
According to the Property Records Industry Association, as of February 2014, almost 1,100 counties had some capability of eRecording, but only 230 of those can handle an all-electronic process. In that case, a complete paper form does not exist – even notarization is done electronically. The remainder record scanned copies of traditional signed documents (known as "wet-signed").
CFPB can influence the other parties, but it will have a difficult time influencing poorer counties to upgrade their infrastructure to accept eRecording. They acknowledge that it may only be practical to achieve a partial eClosing process, with at least the Note and Security Instrument still requiring a wet signature.
- Security and Storage – Whether cloud-based or locally hosted, security is still a concern. Since these systems are designed to be interactive, archivable and retrievable, somewhere along the line, there will be password dependencies.
Among the related questions: How are documents stored and what do you keep for legal purposes? What happens if any party loses access, especially consumers? Are paper copies valid with a loss of the electronic original?
Acceptance – Some larger mortgage lenders – or more precisely, their legal departments – are balking at acceptance of eSignatures and eClosing procedures, claiming that the potential liabilities have not been fully fleshed out. Even HUD resisted eSignatures for FHA loans until 2014. There is also a persistent myth that eSignatures and eDocuments are not legal in some areas. That is not the case.
- State Laws – The variety of additional and varied state requirements make a comprehensive program difficult, but still achievable.
The CFPB certainly has their hands full, but they are working in the right direction. If you plan to buy a home soon, keep an eye out for eClosing options. You may contribute to the eventual improvement of the closing process – and if you plan to buy a home later, you may benefit from a streamlined, understandable process that helps the environment.