Ask consumers who've gone through the mortgage closing process in recent years what they found most frustrating about it, and their answers probably wouldn't surprise you.
Not enough time. Too often, homebuyers weren't getting their final loan documents until just before sitting down at the closing table. There wasn't time to read everything – much less understand it all.
Too much paperwork. Borrowers said they were overwhelmed by the sheer amount of paperwork required at closing. And different lenders had different ways of doing things, and differing requirements.
- Too hard to understand. If the would-be homeowners managed to work through all the jargon and legalese (and found someone at the closing table who could answer any questions they raised, which wasn't always easy), they often reported finding errors in the forms – which could lead to delays when a closing package had to be redone entirely.
Those were the key findings in 2014 when the Consumer Financial Protection Bureau (CFPB) looked into the closing process and what could be done to improve it. They realized it's not solely a consumer issue; drama at the closing table affects all the parties involved. As CFPB Director Richard Cordray has since said, "This process is currently not working as well as it could for consumers or industry."
The CFPB undertook an eClosing pilot as its next step. Mortgage closings defined as "eClosings" rely on technology "that allows consumers and those involved with the mortgage transaction to view and sign documents electronically." This also includes "hybrid eClosings," where part of the closing documents are viewed or signed electronically.
The pilot results were very encouraging. Borrowers who used electronic loan documents in the closing process invariably had more time to review their paperwork and ask questions – and at the end of the day, had a much better understanding of the process. Lenders, title companies, and settlement companies said that bringing electronic loan documents into the picture can improve the customer experience, provide greater accuracy and efficiency, and ultimately lower the administrative costs of doing business.
Of course, there are also great environmental benefits to eliminating whatever scraps of paper we can from what has long been – to say the least – a paper-intensive process.
Freddie Mac has been part of this "e-volution" for a decade now (we began accepting electronic loan documents in 2006), and today we offer a full suite of services to help our customers bridge the digital divide – whether you're simply dipping your toe into the water by accepting the initial electronic loan documents electronically for the first time, taking your business further through eDisclosures and eClosings, going fully digital and delivering electronically signed Notes and/or security instruments, or opting for a hybrid approach during any phase of the loan origination process.
From Freddie Mac's perspective, originating loans with electronic loan documents isn't an all-or-nothing proposition. You choose the starting point that's right for you and your business and Freddie Mac will guide you through the rest. We accept a combination of paper and electronic documents and we've made it simple for you to get started with electronic documents – as an approved Freddie Mac Seller, you don't need a separate approval unless you wish to sell eMortgages with electronic notes.
Since October 2015, there's been even more reason to make electronic loan documents a part of your business. The new Truth-in Lending Act/RESPA Integrated Disclosures ("TRID") requirements say that most real property-secured mortgage transactions must now use the new disclosure forms created by the CFPB, and the requirements mandate a three business-day waiting period from the time the borrower receives the Closing Disclosure until the closing itself.
The desired result? No surprises at the closing table. Using electronic documents and delivering them electronically enables you to get those documents to the borrower more quickly, providing needed time for thoughtful, informed review and an audit trail with time-stamped tracking that demonstrates compliance.
Electronic loan documents, eClosings, and eMortgages may be the wave of the future, but those first waves of change are already lapping at the shore. At Freddie Mac, we're here to guide you through the "e-volution" and to help you and your homebuyers begin enjoying the tangible benefits of a digital transaction.
- Freddie Mac has recently revamped and expanded our web pages explaining electronic loan documents and the benefits they provide.
- This CFPB report dissects the closing process from the viewpoint of the borrower, and what they find especially frustrating about it.
- Read the Freddie Mac eMortgage Guide
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