Simplifying Mortgage Closings

Sign this. Sign that. Sign this one here.  A giant paper shuffle plays out around a table at every real estate closing and for anyone who buys a home the entire process is a confusing blur. You sign and pray that everything is right.

Now the Consumer Financial Protection Bureau would like to bring the closing process into the 21st century.  It’s examining ways to overhaul the practice and that can be tough because banking rules vary by state.

But the bureau takes a positive approach and plans to make suggestions for reform.  A starting point is its new report called Mortgage Closing Process Pain Points that highlights typical homebuyer frustrations and complaints.

COMPLAINTS

  • Most people say there’s not enough to time to look over closing documents. They often don’t see the paperwork until they arrive at the closing table and then they’re urged to rush through everything even though they don’t fully understand the terms, or what’s going on.
  • There’s too much paperwork at closings. Some forms are required to help clarify things and theoretically help homebuyers understand what they are doing. Other forms cover lenders’ legal requirements and yet others are required by the federal government or the states. But the volume of paperwork varies from lender to lender.
  • Few of the documents are clear. Homebuyers often have no idea what the terms and jargon mean and they get little help from the professionals in the room.  Sometimes there are even errors in paperwork.

CFPB Director Richard Cordray says, “Mortgage closings are often fraught with anxiety. We have taken action to address some of the problems consumers face, but more needs to be done.”

New rules from the CFPB that require clearer disclosure forms will go into effect in August 2015 . One form called the  Loan Estimate  provides a summary of the key loan terms and estimated loan and closing costs. The second, Closing Disclosure, gives a detailed accounting of the transaction.

But the most exciting possibility is promotion of an online closing system.  Some online closings take place now. But the CFPB plans to launch a pilot project to test whether universal adoption of online closings can clear things up and benefit homebuyers.

Cordray says, “Our eClosing pilot project will provide valuable insight into how to improve the closing experience for consumers. ”

So maybe in our lifetime there will be a significant change and the next time you close on a home, you’ll understand everything and feel as though you are in control.

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Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created ConsumerMojo.com to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.