CFPB Proposes Remedy for Mortgage Pain Points
CFPB Study Looks at Mortgage Pain Points
Over the course of the last year, the Consumer Financial Protection Bureau (CFPB) has been gathering data on the mortgage loan closing process. They solicited feedback from borrowers, lenders and others involved in the loan closing process. Their study had yielded a list of the major mortgage pain points that each group deal with.
Armed with these results, the CFPB has released the latest phase of “Know Before You Owe”, aimed at making the home buying process less of a headache for borrowers. Know Before You Owe phased in two documents – a Loan Estimate that lays out a loan’s terms, closing costs and fees as well as a Closing Disclosure, which gives borrowers a detailed accounting of the loan transaction.
The CFPB found that borrowers report being overwhelmed by the huge amount of documents and the short amount of time they have to review them when they are in the final phase of securing a mortgage.
The report details three major mortgage pain points:
- Insufficient Review Time – Borrowers have a very short period of time to look over a huge amount of closing documents. Many said they had not seen any documentation until they came in to sign the final closing papers. People felt pressured to sign the paperwork regardless of their understanding of the terms of the loan.
- Huge Amount of Paperwork – Borrowers are required to sign no less than twenty pages of loan documents, and sometimes much more. Some of the forms are supposed to help them understand the risks and costs of their loan, some are there to protect the lender from legal risks and others are required by Federal, state and local governments.
- Complexity of Documents and Errors – Legal and technical wording makes it difficult for borrowers to understand what they are agreeing to. Borrowers also reported finding errors in the paperwork at closing. This caused delays in the closing because loan agents had to completely rewrite the entire closing package.
To try and ease these pain points, Know Before You Owe requires that the Closing Disclosure must be received by the borrower at least three business days before the closing takes place. This is intended to give borrowers time to review the terms of the loan. However, the CFPB does not have jurisdiction over all the documents that are part of a closing, so borrowers still see the majority of forms for the first time at the closing table, with no time before-hand to look them over.
Another effort to reduce the pain points is the beginning of a pilot eClosing program, which will launch later in 2014. The pilot will test a number of ways to make the closing process less burdensome. The CFPB will collect data and study if eClosing results in the more efficient review and signature of closing documents. The goals of the eClosing program encompass many areas, including:
- Enable better borrower understanding via
- Educational materials
- Glossary of terms
- Process explanations
- Incentivize early document review
- Allow borrowers to see ALL documents at least 3 days prior to closing, not just CFPB documents
- Facilitate error detection
- Keep the closing process on track by letting both lenders and borrowers find and address errors before the final closing
Lenders that wish to take part in the program must submit a proposal that includes a partnership between them and a technology vendor who will create an eClosing solution for them to use.
Consumer Finance.gov – CFPB Report Highlights Mortgage Pain Points
Consumer Finance.gov – eClosing Pilot Program PDF
National Mortgage Professional Magazine – CFPB Reports on Consumer Frustration with Mortgage Paperwork