Originally published in MBA NewsLink // January 23, 2023
The validity of the statement, “you have to spend money to make money,” has been extensively debated, but most in the business world agree, at least to some extent, that the sentiment rings true. A similar principle can be applied to eClosings as you have to “spend” time to “make” time. Or more simply put, an easy way to increase eClosing efficiency would be to increase the length of the closing process.
Most consider the “closing process” to begin at the point the borrower receives their closing documents through the closing ceremony where the borrower(s) sign the documents. Expanding the closing process to three days and matching the closing disclosure timeline benefits the borrower, the lender and the settlement agent. The borrower has additional time to review the loan documents, increasing their understanding of the process and transaction; the lender can perform QC and post-closing QC during the closing process to improve the quality of the transaction and settlement agents can book more closings per day.
In a landmark pilot, the Consumer Financial Protection Bureau (CFPB) found electronic closings (eClosings) weren’t just faster or just more convenient – they also give consumers a greater understanding of the mortgage closing process and “feelings of empowerment.”
CFPB’s four-month pilot involved seven lenders, four technology companies, multiple settlement and real estate agents and more than 3,000 homebuyers. Some did a traditional paper closing. Some reviewed and signed only electronic documents. Still others were given both electronic and paper documents, a “hybrid” model.
CFPB then surveyed buyers from all three groups on their understanding of the closing process and how they “felt” about the closing. Interestingly and unsurprisingly to eClosing advocates, the researchers found eClosings offered:
- Better retention of information. Borrowers using the eClosing scored higher in their understanding of the process compared to borrowers using paper documents.
- A more efficient process. Borrowers who used the eClosing felt the process was more efficient than reported by those using paper documents.
- A sense of empowerment. Borrowers using the eClosing felt “empowered,” and agreed they had sufficient time to review documents, ask questions and flag concerns.
Most homebuyers that were part of an eClosing transaction received early delivery of their loan documents, allowing for extra review time. It is not surprising that homebuyers who scored well on all three measurements – understanding, efficiency and empowerment – were also provided their closing documents in advance of the closing meeting for review. “We expect this pilot project and its findings to help inform further innovation that will be a win-win for consumers and industry alike,” said then-CFPB Director Richard Cordray.
Innovation in action
According to the National Association of Realtors® (NAR), both homebuyers and sellers want to have remote digital real estate closing options. And as we all know, Millennials represent the fastest-growing segment of homebuyers. These buyers are well educated and tech-savvy, says NAR. In other words, they’re far more comfortable than previous generations in working with someone remotely.
In fact, according to an Ellie Mae survey, 50% said they chose their lender based on whether they offered an online application or portal. Forty-seven percent said access to an online portal for uploading documents electronically was a factor in their decision to use a lender. This is because it’s a mode they’re comfortable with already – many shop, invest, plan vacations and pay bills only online. It’s also because there’s an inherent convenience and time savings.
A similar survey found that 82% of borrowers who secured a mortgage in the past two years say they would have signed and notarized all closing documents electronically via video interaction if they had the ability to do so and are statistically more likely to say so than consumers who went through the mortgage process 3 or more years ago (77%).
Consumers’ comfortability with the digital mortgage process is confirmed with each survey and study performed. In a recent eClosing survey, borrowers engaging in an eClosing transaction reported a level of preparedness of an 8.1 out of 10.
When we deliver electronic documents online, buyers have more time for review and asking questions. Reviewing paperwork at their convenience gives buyers a greater sense of being in control – that “empowerment” cited by the CFPB. It also saves time during the actual closing ceremony. The CFPB pilot found that 72% of eClosings took less than 30 minutes, while the same could be said for just 11% of paper closings.
Plus, with all of the documents online, closing agents can perform their QC throughout the process to save time down-the-road and improve the quality of the transaction. In fact, one study showed that eClosings have reduced defects by more than 30%. And that’s without bringing additional time during the closing process into the equation.
Closing the loop
With all parties benefiting from a longer closing process, it’s not only the win-win that Cordray predicted, it’s a win-win-win. While it may seem counter-intuitive to many that a longer closing process will lead to a shorter closing transaction, the proof already exists. So, what’s stopping us?