Alert April 29, 2014

CFPB Launches Pilot Program for Electronic Mortgage Closing Process

In conjunction with its field hearing on “key consumer ‘pain points’” (see April 15, 2014 Alert), the CFPB announced the release of a report that discusses consumer and lender frustrations with the current state of the residential real estate closing process, and proposed an “eClosing” pilot program to use technology to address some of the biggest problems. The report discusses a number of closing-related complaints, including that: (1) borrowers do not have enough time to review documents; (2) documents often contain errors; (3) too many documents during the closing process; and (4) language in closing documents is difficult to understand. The report also addresses potential barriers to an eClosing process, such as standardization across states and loan types, noting that adoption of eClosing solutions has been more prevalent among smaller lenders. Finally, the report noted gains made in the industry, while highlighting the barriers that have prevented broader adoption, such as industry hesitation to accept eNotes and electronically signed security instruments and the limited availability of eRecording security instruments in local land records.

To encourage the further adoption of eClosing across the industry, the CFPB launched a pilot program to examine how technology can make the closing process more efficient and consumer-friendly, as well as the extent to which eClosing is feasible and sensible, and how best to spur broader industry adoption of eClosing solutions. To participate in the pilot program, the CFPB’s guidelines provide that a lender must have an existing relationship with an eClosing vendor, or have developed an in-house eClosing solution, that meets certain criteria, such as a document and data management system allowing for access by consumers and transfer to downstream customers; secure technology platforms that allows consumers “not only to view documents, but also to interact with them”; and a system that allows for a clear audit trail, among other requirements.