An exploratory look at the role of technology to empower mortgage consumers at closing. In this white paper, current process of closing is compared with technology enabled closing process.

1. eClosing –
Modernizing Loan Origination Climax
Abstract-
An exploratory look at the role of technology to empower mortgage consumers at
closing
Author-
Mahesh R Pawal
pawal.mahesh@gmail.com

2. Executive Summary-
As an extension to the ‘Know Before You Owe’
project, the Consumer Finance Protection
Bureau (CFPB) started to look into the critical
pain points of the mortgage industry closing
process.
The CFPB analyzed feedback from customers
and industry stakeholders related to the
process in order to understand the key
challenges resulting in frustrations. It was
observed that during the closing process,
customers face an overwhelming package of
closing documents that are large and too
legally worded making it difficult for a lay
man to comprehend. The significant reasons
being -the number & complexity of
documents, errors in documents, and scarcity
of resources to raise awareness of the
terminology used in the mortgage industry.
Besides customers, others stakeholders also
reported their challenges with the process
itself like, lack of standardization in paperwork
resulting in redundant and repetitive
documentation, etc.
The latest initiative by the CFPB - technology
enabled eClosing process has been tested
through a pilot program. The Pilot program is
in line with the CFPB’s mission to make a
mortgage process more efficient and
consumer-friendly.
The core modules of the eClosing process are
eDocumentation, eDelivery, eSignature,
eClosing platform, eNotarization and
eStorage.
On the customer front, pilot program resulted
into increase in perceived understanding,
empowerment, and convenience. This was an
outcome of early delivery of documentation
along with mortgage related awareness
material. Overall, the remedial actions
included digitizing the closing process,
altering the documents presentation and
storage, etc. This, however, also led to
concerns like technology adaptation risk,
Information Technology capital investment,
and coordination issues in regulatory
authorities.

3. 1. Introduction:
Lending industry driven by technology based
innovations has been evolving in line with
information technology sector during the last
few years. This includes the latest development
on borrower front like websites for comparison
of lending rates from plethora of lenders to
online tools for equated monthly installment
(EMI) analysis, rent vs buy decision, refinance
break even analysis, etc. On lender front, the
stage is moving from a paper based manual
process to information technology driven
automation. This involves potential client
segmentation, progress from spreadsheet based
loan origination process to developing a
completely dedicated software application for
loan origination and servicing.
However, technology has yet to make a
significant impact on the documentation
mortgage process. The first electronically closed
mortgage received by Fannie Mae was in the
year 2000; but recession and slowdown in the
housing market followed by the sub-prime crisis
apparently killed a growing interest in
technology based closing process as lenders had
to focus available resources and energy on
survival.
As economy is back on the track, the industry
influencers, stakeholders, and regulators want to
test the waters again. As a part of this initiative,
Consumer Financial Protection Bureau (CFPB)
announced electronic loan closing pilot program
to make the process more transparent, effective,
and efficient.
2. Background:
The Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act)1
required that the CFPB should combine
necessary documents involved under the Truth
in Lending Act (TILA)2 and the Real Estate
Settlement Procedures Act (RESPA)3 to publish a
single, integrated disclosure for mortgage loan
transactions. Accordingly the CFPB launched
new project called ‘Know Before You Owe’ to
design the prototype of integrated disclosures.
Existing mortgage closing process is one of the
major pain points for borrower, lender, and
other stakeholders included in the process
because of complexity involved in the
documentation process. During regulatory
implementation efforts, the CFPB decided to
extend scope and include the mortgage closing
process also.
1:http://www.cftc.gov/ucm/groups/public/@swaps/docu
ments/file/hr4173_enrolledbill.pdf
2:http://files.consumerfinance.gov/f/201503_cfpb_truth-
in-lending-act.pdf
3:http://files.consumerfinance.gov/f/201503_cfpb_regul
ation-x-real-estate-settlement-procedures-act.pdf

4. 3. Existing Process and Current Issues:
Buying a home is one of the biggest financial
decisions that most people make in their
lifetimes. Potential borrower generally identifies
a property as per budget constraint and
approaches to lender for additional financial aid.
After the initial analysis of income, liabilities, and
other financial parameters – a customer formally
applies for a mortgage loan. Once application
has been received by a lender, it triggers back-
end driven processes like information
processing, credit report check, black listing
check, valuation, and underwriting. These
processes does not require direct interaction
with a customer. During process, lender sends
few documents as required by the regulatory
authority driven by various parameters like
mortgage type, amount and so on. E.g. - Good
Faith Estimate (GFE) document, one of the
document mandated by authority, gives an
estimate of settlement charges and loan terms.
The direct interaction with customer is required
for the loan closing process, which is the last
step in a customer’s largest and most complex
financial transaction. The closing documents
package is presented to a customer at the last
moment and contains language that is too
difficult to comprehend. Moreover, the list of
documents varies from place to place and
include federally mandated documents,
state/local mandated documents, contractual,
and lender specific risk mitigation documents.
The clauses, terms, and structure of documents
put significant pressure on a customer who is
required to sign the documents within the given
time-frame.
3.1 Overview of major pain points of ‘AS-IS’
mortgage closing process:
One of the key motives behind establishment of
the CFPB was to increase transparency in
consumer financial market and provide tools,
opportunities to customers to make better
decisions. In line with this mission, the CFPB
directed its efforts to understand the challenges
in the closing process (Exhibit 1). Following three
channels were used to capture pain-points &
challenges from customers and industry
stakeholders.
1. Review of complaints related to the closing
process.
2. Interviews with customers and industry
stakeholders (e.g., settlement agents, housing
finance professionals, housing attorneys, etc.)
3. Responses received via
electronically/mail/through other means to the
CFPB’s request for information (RFI).
The research was focused on the negative
experiences of the mortgage closing process. In
general, Bureau has identified five outcomes of
the negative experiences from the process as
follows:
a. Confusion
b. Time pressure
c. Cost
d. Delay
e. Stress.

5. Exhibit 1
The common issues cited by customers and
industry stakeholders during the closing process
are as follows:
3.1.1. Documents package delivery timing –
The timing of document delivery was the most
common challenge in the RFI responses,
appearing in 43 percent of comments.
Specifically, 31 percent of customers, 51 percent
of notaries, and 58 percent of settlement agents
that responded to the RFI. Before closing, each
document passes through multiple stakeholders.
A common concern reported by stakeholders
was that, sometimes document delivered behind
schedule by processing stakeholder due to
reasons like mistakes, processing lag, etc.
Delayed document delivery can create a ripple
effect through the process that can push back
each subsequent relevant processes.
Furthermore, forcing each party to rush through
the documents to send them to the next party in
line can lead to additional errors and stress – a
typical case of ‘domino effect’.
Many documents do not reach the customer
until the closing meeting. With close to 100
pages to review and sign during a meeting that
is typically no longer than an hour, customer
finds it difficult to read and digest all of the
documents. For this obvious reason every
customer during the targeted interviews,
confirmed that he/she would prefer to receive
the documents at least two days prior to closing.

6. 3.1.2. Errors in documents –
Stakeholders also noted the existence of errors
in the closing documentation, which can lead to
additional delays. RFI response cited by 24
percent of customers, 31 percent of settlement
agents, and 42 percent of notaries. Even a small
error in the paperwork can result in long delays.
One document generation provider explained
that the most common errors, such as a
misspelled name or missing spouse name,
require closing agents to send back and correct
the entire closing package. Customers and
industry stakeholders were particularly frustrated
since these errors occurred at the closing table
when all parties had reserved the meeting time
and expect to complete the transaction.
3.1.3. Large number of documents –
As mentioned in previous section, list of
documents varies and is driven by different
parameters related to mortgage and often
contain redundant information. Each customer
needs to sign all documents related to federal,
state, contractual, and lender specific mortgage
documents.
Customer-specific challenges:
In addition to the common challenges, there are
a few set of challenges uniquely linked to
customers.
3.1.4. Language comprehension –
Customers find closing documents language too
much legal and full of jargons related to
mortgage industry which is difficult to
comprehend. This issue came up in a majority of
the interviews with customers, and 38 percent of
customer RFI responses mentioned confusing
documents. Customers stated that many
documents seem to be designed for lawyers and
not for the average borrower.
3.1.5. Resources availability and awareness-
Customers find fee variation in closing
documents with respect to Good Faith Estimate
(GFE) document. Lender has complex fee
structure which considers different parameters.
The GFE quote is designed with ideal range for
minimum borrowing cost, but actual calculations
vary and adds additional fees. The existing
material explaining all details, is not available to
the customer readily. Apart from that,
sometimes mortgage based terminology is not
supported with few examples that adds difficulty
in understanding the meaning of the specific
terms. 27 percent of all RFI respondents
mentioned that no one was available to explain
the process or content to them, and 18 percent
noted that key participants (e.g., loan officers)
were difficult to reach throughout the process.
Industry stakeholder-specific challenges:
Similar to customers, each set of industry
stakeholder faces particular challenges.
3.1.6. Absence of standardization-
Industry stakeholders need to deal with various
regulations and need to be familiar with a large
set of documents. As standardization has been
not up-to the mark in closing package,
documents list is driven by mortgage based
parameters which contains redundant
information collected by various regulatory
authorities.
3.1.7. Risk Mitigation documents-
The legal risk is perceived with different
sensitivity among stakeholders. This forces
additional documentation.

7. 4. Pilot Program Overview:
Based on a preliminary review of the current
closing process challenges, the CFPB believes
that the opportunities exist to improve the
current process to address the obstacles faced
by both consumers and industry stakeholders.
The CFPB has identified seven potential actions
to address key obstacles in the closing process.
The potential actions include:
1. Simplify and streamline documents
2. Reduce number of documents
3. Standardize forms
4. Digitize the process
5. Alter order/presentation of documents
6. Improve process and timing
7. Add educational tools
The Bureau grouped these actions under two
broad solutions.
The first solution is ‘Reduction/Simplification of
Closing Package’ which deals with first three
action items. Under this solution, the Bureau is
involved in studying existing closing packages
along with other relevant regulatory authorities
in order to remove redundancy without touching
customer’s right or protection.
The remaining four action items come under
second solution – ‘Leveraging technology-driven
eClosing solutions’. Electronic solutions are an
important building block toward the Bureau's
vision for a process that empowers consumers
via education and transparency. Additionally,
eClosing provides new opportunities to embed
educational tools into the closing process in
order to increase understanding and further
enable the customer to play a more active role.
The use of technology could also reduce time
and burden for industry as customers will be
aware of most of the things in closing process.
4.1 eClosing Pilot Program:
The term ‘eClosing’ or electronic closing, refers
to a mortgage closing that relies on technology
for stakeholders involved to view and/or sign
documents electronically. It has six technology
components as follows (Exhibit 2).
4.1.1. eDocuments-
Electronic documents can be as simple as a
scanned PDF version of the traditional paper
documents or as sophisticated as a SMART Doc.
SMART Doc® is a registered trademark of
MISMO, the Mortgage Standards Maintenance
Organization. SMART Doc is a standards-based
document view like PDF, HTML or TIFF that is
complemented with specific document level
meta-data, tamper-evident seals, audit trails,
electronic signature attributes, and easily
accessible data.
4.1.2. eDelivery-
In the eClosing process, documents can be
electronically delivered to customers by email or
accessing an online portal within a vendor
platform. eDelivery impacts two stages of the
closing process. First stage involves electronic
delivery of documents to a customer prior to
closing for review and acknowledgement of a
receipt. Second stage involves delivery of
documents after the closing process by the
settlement agent to downstream stakeholders,
including the lender, investor, and county
recorder. This process gives ample time to
customer for review purpose before signing it.
4.1.3. eSignature-
This is a critical component of the process.
eSignature can be collected in multiple ways,
such as using a digital signature pad or by
clicking to add a computer-generated graphic

8. signature. The legal framework governing
electronic signatures is the Electronic Signatures
in Global and National Commerce Act (ESIGN)
and the Uniform Electronic Transaction Act
(UETA). Additionally, a group of industry leaders
created the Standards and Procedures for
Electronic Records and Signatures (SPeRS) to
articulate guidelines for following ESIGN and
UETA.
Exhibit 2
4.1.4. eClosing Platform-
Here, each and every page is electronically
reviewed and signature is attached as per
preferred method. A customer can preview
closing package beforehand and can point out
any spelling mistake, missing names, etc. A
customer asks any additional questions to
closing agent, if any.
4.1.5. eNotarization-
Few sets of closing documents require
notarization as per regulatory authority. In a
traditional mortgage, a notary will apply his or
her seal directly to the paper documents.
However, notaries can also apply these seals
electronically in certain jurisdictions. Regulations
and requirements for eNotarization of electronic
documents vary by state. Areas of variability
include requirements to earn eNotary
certification, the physical location of the notary

9. during the transaction, and how an eNotary
affixes the tamper-proof seal to the eDocument.
4.1.6. eStorage-
All the mortgage related documents are saved in
eStorage. These documents can be accessed by
relevant stakeholder as and when required
secured by access based control. Each document
has meta-data which stores the changes made
or accessed information. This information is used
in audit purpose and to track changes.
4.2 Minimum Required Capability for
Participants
The CFPB has laid out minimum required
technical capability and functionality to
participate in the eClosing pilot program. Few
critical criteria have been listed below.
4.2.1. Document management and transfer
standards-
A pilot participant should have the ability to
store and transfer documents and data securely
between different parties involved in the real
estate transaction, including the lender,
consumer, settlement agent, and downstream or
secondary investors.
4.2.2. Central platform with collaborative
workflow-
A pilot participant should provide central
platform either online or through dedicated
application where other stakeholders can view
and edit the closing document package
controlled by access based control mechanism.
The mechanism will help to avoid privacy issues
and unauthorized edit by stakeholders.
4.2.3. Electronic signature facilitation-
A pilot participant must offer the ability to
accept electronic signatures from the
stakeholders on the closing documentation. The
process to accept e-signature must be
consistent with the legal framework outlined in
ESIGN and UETA.
4.2.4. Ability to audit and controlled access-
A pilot participant should be able to handle
documents with audit trail for all the
transactions including view only. Stakeholders
should be given role based access to closing
documents.
4.2.5. Ability to sanitize data-
A pilot participant should be able to mask, strip
and remove sensitive information from
documents when it is sending for analysis
purpose.
4.2.6. Educational and awareness material-
A pilot participant must have portal with
terms/jargons and terminology used in
mortgage industry. It should also provide direct
links, if possible, in document itself.
4.3 Participant List
4.3.1. Technology Vendors-
Accenture Mortgage Cadence
DocMagic, Inc.
eLynx
Pavaso, Inc.
PeirsonPatterson, LLP
4.3.2. Lenders-
Blanco National Bank
Boeing Employees Credit Union
Franklin First Financial, Ltd.
Flagstar Bank
Mountain America Credit Union
Sierra Pacific Mortgage
Universal American Mortgage Company

10. 5. Pilot Program Outcomes:
The CFPB believes that eClosing solutions
contributed toward the long-term vision of
improving the closing process and providing
specific benefits to customers.
5.1 Benefits:
Pilot program’s benefits include the following:
5.1.1. Perceived understanding-
Customers understanding level increased as
education and awareness materials were
available beforehand. The change in fees,
technical terms, and jargons were understood by
customers relatively easier compared to
traditional approach.
5.1.2. Increased Empowerment-
Customers felt empowered as closing
documents package was available for review
purpose much earlier than traditional method.
Customers were able to mark points which can
be questioned at closing platform.
5.1.3. Increased Convenience-
All relevant closing documents package were
delivered via eDelivery model online which
added convenience factor for the customers. The
documents were reviewed by customer at their
own time and schedule.
5.1.4. Decreased delay and cost-
Customers review helped to find miscellaneous
errors from closing package and changes were
rectified faster, thus reduced delay in closing and
cost associated with delaying process.
5.1.5. Reduced consumer anxiety-
Another advantage of eClosing is that it could
transform the closing experience in ways that
may lead to less anxiety for consumers. The
large stack of complex documents is clearly a
source of stress for many people, who indicated
that they often do not read part or all of the
documents. A less anxiety-inducing closing
process could lead to increased understanding
and a more positive consumer experience.
5.2 Risks:
Potential risks involved in eClosing process are
as follow-
5.2.1. Ignorant review-
Although many customers indicated that they do
not read part or all of the documents that are
presented to them in a traditional closing, there
is a risk that switching to an electronic process
could reduce the amount of time customers
spend reading and understanding the closing
documents.
5.2.2. Technology adaption risk-
Close to 16 percent of the US population still
does not have a computer at home and does not
have access to Internet elsewhere. In addition,
while mobile options are narrowing the digital
divide, the small screen format of mobile devices
may present particular challenges for eClosings.
Some customers are concerned that if they
cannot access their documents and do not
otherwise have the terms of their transaction
readily available, there could be increased
opportunities for unscrupulous lenders to
commit fraud.
5.2.3. Infrastructure capital investment-
Although eClosing process has advantage in
long term, currently the CFPB can’t force small
scale lenders to invest into technology
components. The capital investment might prove
bigger liability compared with portfolio and
earnings of small scale lenders.

11. 5.2.4. Resistance from secondary investors-
There is still some confusion and perceived risks
among secondary investors. In absence of
concrete rules and regulation from government
body, few secondary investors are reluctant to
changes.
5.2.5. Coordination challenges-
The number of stakeholders involved in process
depends on mortgage parameters. Ideally all
parties should provide consent and work
towards achieving benefits. The resistance from
any stakeholder will affect mortgage eClosing
ecosystem. Also, there are various regulatory
institutions involved in closing documents which
needs to compromise on authority.
5.3 Key Factors:
The key factors required in mortgage industry to
achieve benefits of pilot program and change
the industry, are as follows:
5.3.1. Clear expectations and consistent
communication-
All stakeholders should be made aware of results
of pilot program and communicated the benefits
of pilot program. It will help to establish
common set of expectations from homogeneous
group of stakeholders in the process.
5.3.2. Technology investment
commitment/Third party service-
Mortgage industry players, particularly involved
in closing process should make the technology
investment and upgrades in order to get fit into
process. Small players, which are unable to make
such changes, should seek service from third
parties with necessary infrastructure.
5.3.3. Timeframe for rollout and hybrid
solution-
The CFPB should announce the timeframe for
rollout of eClosing after getting required
approvals from government. The option to use
hybrid solution with relevant interface and
integration options should be carefully designed
in order to provide flexibility.
6. Conclusion:
The results of eClosing pilot program, as per the
CFPB, were encouraging for mortgage industry
participants that are currently using eClosing,
working towards it, or in early discussion of the
process.
The borrowers, who participated in eClosing
pilot program, experienced benefits while using
eClosing process partially or completely as
compared to traditional paper-based process.
This implied the proposition that eClosing can
be valuable option. The supporting pillars for
proposition were increase in perceptions of
empowerment, understanding and efficiency
from customers’ point of view. Industry
participants will be benefitted in the long term
on parameters like cost, time, quality, and
automation.
However the pilot project should not be treated
as final verdict on potential eClosing process as
the data samples, technological, financial and
methodological constraints put restrictions on
the number of participants including customers,
technology providers, and lenders. The risks or
challenges involved in the process should be
handled via risk mitigation or prevention
methods after vigilant thorough study.
The CFPB has been committed to improving the
mortgage process for customers, empowering

12. them and fostering more efficient process. The
‘Know Before You Owe’ mortgage disclosure rule
implementation results will provide additional
boost for the detailed level regulatory changes
for the eClosing process that will acts as one
critical milestone in the mortgage industry
history.
7. Footnotes:
7.1 References:
7.1.1. The CFPB guidelines:
http://files.consumerfinance.gov/f/201404_cfpb_
guidelines_eclosing-pilot.pdf
7.1.2. Closing process:
http://files.consumerfinance.gov/f/201404_cfpb_
report_mortgage-closings-today.pdf
7.1.3. US population and technology
penetration report
http://www.census.gov/prod/2013pubs/p20-
569.pdf.
This white paper is for information purpose only and views expressed are
subjected to author’s understanding of references mentioned.