Mike Vitali comments on CFPB’s focus on the eClosing process.
In a September 22 MT Magazine article (CFPB Article), Richard Cordray stated that CFPB wants to reduce “the visual tyranny of the stack of closing documents”. Forget the fact that this “tyranny” of documentation is mostly the result of consumer protection laws creating the need for lenders to protect themselves.
The idea, and hopefully someday soon, implementation of a totally paperless closing is great. However, a paperless closing with the present volume of loan documents will do nothing to assist the borrower to have a better understanding of the process, the mortgage contract or the related responsibilities.
The real problem is the number of documents that need to be read and signed by a consumer in connection with a home mortgage. Mr. Cordray points out that the document package needs to be reduced and that CFPB is doing their part by integrating the GFE/TIL and HUD-1 from 3 documents down to 2. A mere drop in the ocean!
Made up of the required federal and state disclosures, security instruments with riders, FHA or VA forms and special secondary market/lender required documents, a loan closing file may reach northward of 200 pages. On paper or online this is way too much information for any consumer to read and digest. Without a severe reduction in the required documents needing review and signature, the closing process will remain a challenge regardless of the entry of the eClosing.
The security documents lay out the terms and conditions of the loan. A first payment and initial escrow analysis provide the breakdown and explanation of the new payments. A brief servicing transfer notice can explain what may happen to the loan after the closing. Simplify the process and concentrate on the contents of the Mortgage/Deed of Trust, Note and any Riders at the table. These clearly spell out the borrower’s rights and responsibilities under the contract they sign.
An alternative is to provide all other required disclosure and documents prior to the closing. Maybe they can be provided at commitment, so the borrower has the time to read, understand and question any content. This will also allow them time to seek legal assistance, if they so desire, while providing protection for the lender.
eClosing is great but not without a drastic reduction in the number of documents now needing review and signature at closing.