Mortgage eClosures: Making Buying a Home Easier For Everyone

Justin Sullivan/Getty Images
Justin Sullivan/Getty Images

The world of finance and banking has evolved rather fast. A decade ago, you were still getting stuck behind people at the supermarket writing out checks to pay for their groceries. That may still happen, but it’s more likely that you’ll see someone whip out their smartphone and use Apple Pay than pull out their leather ledger. Plastic has replaced cash, PayPal has changed the way we exchange funds, and we can make purchases on the fly with Amazon Dash buttons.

But one thing that hasn’t changed is the home buying process and its murky, confusing, and incredibly long closing procedures. Not to mention the mountains of paperwork.

The framers of the Dodd-Frank act recognized this was a trouble spot for many homebuyers, and thankfully acted on it. The result has been a new electronic closure process, or eClosures, as they’re being called, which are being shown to make the process more fluid and easier to understand.

“When the Bureau started exploring the process and use of eClosings in 2013, we participated in extensive conversations with consumers, industry stakeholders, consumer advocates, and partners across government,” the Consumer Financial Protection Bureau’s Richard Cordray wrote in a press release. “We set out to conduct a pilot project that would take a closer look at how the eClosing process might influence the mortgage closing experience for consumers.”

The results?

“eClosing borrowers in our pilot scored higher than paper borrowers on our measures of empowerment at closing, perceived understanding, and efficiency.”

Essentially, the CFPB found a way to streamline the home-buying process, and make it less painful for those looking to saddle themselves with a mortgage and gain the benefits of homeownership. See? Government can solve some problems. Or at least make things a little better.

The eClosure process itself differs from the traditional method in a fairly simple way: instead of borrowers and others involved in the process receiving physical paper documents through the mail or otherwise, they are sent electronic documents that can be viewed and signed online. So, instead of a stack of confusing papers showing up at your door, you’re essentially getting a giant PDF document, or an e-book. You can search through them more easily, and research tricky terms and conditions with Google close at hand.

It doesn’t seem like that big of a change, but it’s clear that this simple shift has left borrowers feeling a lot more comfortable.

For those of you who have never had to go through the process of closing on a home, it’s hard to understate how much potential there is for the CFPB’s new eClosure system. For many Americans — even people who have been through the process themselves — the entire system is still somewhat mysterious. After all, we typically just let the real estate professionals and banks deal with it.

But that’s when people get into trouble: when they don’t realize or understand exactly what they’re signing up for. On its face, eClosures helped people better understand the process itself and its inner-workings. Obviously, the CFPB can’t stop people from making bad decisions, but creating a way to clear things up so that people are more informed? This program shows a lot of promise.

Using a quiz, researchers were actually able to measure the improvement in the levels of understanding, confidence, and efficiency with eClosure users compared with those who went through the process with the traditional ‘paper’ documents. Here’s the chart:

Source: CFPB
Source: CFPB

It’s pretty amazing that simply switching to an electronic format saw such a profound jump in these metrics, but this is what the CFPB is reporting. And if the eClosure format is adopted for wide-scale use, that should lead to a more informed consumer base, who will make better decisions. After the home bubble and financial crisis in the mid-2000s, that’s definitely not a bad thing.

Again, this was just a pilot program, and hasn’t been implemented on a full scale. But if you’re looking at buying a house in the near future, it’s something to keep an eye on. Anything that makes a life-altering decision more fluid and efficient will go a long way in helping your stress levels.

Follow Sam on Twitter @SliceOfGinger

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