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Mortgages

Three things to do before closing: What we learned from studying eClosing

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eClosing graphic

We’ve heard from many consumers about the overwhelming process of closing on a mortgage, which can be confusing and difficult. Closing is the part of the mortgage process where you accept the terms of your loan, the last step before you owe, and usually before you owe more than you ever have in your life.

As part of our broader efforts to improve the overall mortgage experience, we’ve been exploring how technology can be used to address some of those pain points in the closing process.

Today we’re releasing the results of a pilot program where we explored tools and process changes that can help consumers better navigate closing by accessing and signing their closing documents in different ways. Specifically, we examined what would happen if there was more technology involved in the mortgage closing process, with documents being delivered electronically earlier together with online tools and resources. The electronic delivery and signing of closing documents using electronic signatures is sometimes referred to as eClosing.

We wanted to study the idea that by using technology as a tool, consumers may be better informed and prepared – putting them in the driver’s seat at closing.

What we found

Though our data is based on a limited sample of borrowers, we learned that borrowers experiencing eClosings on average scored higher on the pilot measures of empowerment, understanding and efficiency in the closing process, when we compared them to borrowers not using these elements of technology to close on their mortgage.

As the mortgage industry continues to take on eClosing and various innovations that help make such a complex process easier for you—the consumer—to navigate, we have three takeaways from this study that can help you with your mortgage closing, regardless of what closing process is available to you by your lender.

1. Ask for more of your closing documents before you get to the closing table

Consumers who participated in our pilot and received and reviewed documents before the closing meeting reported that they felt they had a clearer understanding of their loan and were less confused by the mortgage process than those who did not review the documents early.

As a part of our Know Before You Owe mortgage initiative we are working to give consumers more time to review the new mortgage disclosure called the Closing Disclosure. On October 3, 2015, our new mortgage disclosure rule will require that for most mortgages, consumers get their Closing Disclosure at least three days before closing. This new Closing Disclosure is a consumer-tested summary of your loan that gives you all of the final loan terms in one place before you sign on the dotted line. However, the Closing Disclosure will be one of many closing documents you will receive.

Ask your lender if you can see documents like the Promissory Note and the Security Instrument ahead of your closing. If you applied for a mortgage on or after October 3, 2015, use the new Closing Disclosure as the “executive summary” of your closing. Learn more about the key closing documents you can expect at Owning a Home, our suite of tools and resources for homebuyers.

2. Take time to review your closing documents in advance

The stack of documents at closing can be overwhelming. Reviewing these ahead of time allows you to focus on key documents ahead of your closing so you feel less anxious that you’re missing something buried in your closing stack.

Consumers in the pilot who received their closing documents in advance of closing and found errors on their closing documents were more likely to flag and ask for corrections on errors before they got to the closing meeting. Those in the pilot who reviewed their documents early were also less likely to say that they felt rushed during their closing meeting. Since these borrowers had the documents early, the “closing” effectively started days before meeting, and borrowers had time to ask questions before they signed on the dotted line.

3. Know about the mortgage process before you owe

Consumers in the study who used the CFPB’s educational tools such as Ask CFPB, a database of commonly asked financial questions, and our closing checklist found in Owning a Home, were more likely to feel that they could play an active role in their closing process than those who didn’t. Consumers who used some of these tools were also much more likely to report stronger agreement on statements like “I had a clear understanding of why the costs outlined in my initial Good Faith Estimate were different than my final closing costs.”

While our study is over…..

We’ll continue to promote consumer-friendly solutions in the mortgage process. In particular, we hope that the use of technology in the closing process is studied further by both the industry and government to see how it can potentially improve a borrower’s mortgage closing experience even more.

As eClosing continues to be studied and implemented, remember, you can use many of the principles we used in our study to improve your own closing.

Check out our full report to learn more about the pilot.

The Know Before You Owe mortgage rule will take effect October 3, 2015

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Know Before You Owe mortgage disclosure forms

Today, we’re issuing a final rule delaying the effective date for the Know Before You Owe mortgage disclosure rule to October 3, 2015. The Know Before You Owe rule will improve the way you’ll receive information about mortgage loans, both when applying for a loan and when you’re getting ready to close.

We’ve been talking about the Know Before You Owe mortgage disclosure rule for a while, and we’ve also been hard at work to provide helpful information for the mortgage industry to understand what the requirements are, including how to fill out the disclosure forms.

You can check out more information about the project that got us here and what the Know Before You Owe rule means for consumers like you.

We want it to be easier for you to shop effectively for mortgages and to make the decisions that work for you and your family. We want consumers to be confident in the information they receive, the lenders they work with, and their ability to make good comparisons. The Know Before You Owe mortgage disclosure rule is a key part of that effort, so we’ve spent a lot of time testing the new disclosure forms with consumers. We’re confident that the new disclosures will make information clearer and easier to use, and we look forward to their implementation starting October 3.

To learn more about the effective date, including why there was a delay, read our press release.

You have the right to a fair financial marketplace

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We've secured over $10.8 billion dollars in relief for consumers harmed by illegal practices.

The Consumer Financial Protection Bureau (CFPB) was created in the wake of the financial meltdown to stand up for consumers and make sure they are treated fairly in the financial marketplace. One way we accomplish this mission is by enforcing consumer protection laws, holding law breakers accountable for their actions. Since 2011, we have secured over $10.8 billion dollars in relief for more than 25 million consumers harmed by illegal practices.

Mortgages

We’ve secured billions of dollars in relief for consumers harmed by systematic misconduct and illegal practices by companies in the mortgage industry. We’ve taken several actions against mortgage servicing companies for failing to tell borrowers when their loan modification applications were incomplete, denying loan modifications to qualified borrowers, failing to honor modifications for loans transferred from other servicers, and illegal foreclosure practices. We have also taken action against companies in the mortgage industry for steering consumers into costlier loans, for paying illegal kickbacks in exchange for business, and for making inadequate disclosures or using deceptive ads.

Credit cards

We’ve secured billions of dollars of relief for millions of consumers harmed by deceptive marketing and enrollment of credit card add-on products, unfair billing, and illegal debt collection practices.

Payday and installment lending

We have taken action against payday lenders and installment lenders for unlawful lending and collections practices that include using false threats of lawsuits or criminal prosecution to collect debts, charging undisclosed fees to servicemembers, and robo-signing court documents related to debt collection lawsuits.

Learn more about how we’re enforcing consumer protection laws in other product areas including auto lending, debt collection, debt relief, student lending, checking accounts, and more.

You have the right to free, unbiased financial information

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CFPB - Four years working for you

If you are confused and lost when you are shopping for a mortgage or when you are figuring out how to pay for college, you are not alone. If you wish you had a financial expert to turn to for trustworthy guidance about paying off debts, or opening a credit card, you are not alone.

If you believe you have the right to free, unbiased financial information, you are not alone – because at the Consumer Financial Protection Bureau, we agree.

It’s our job to provide you with reliable, trustworthy information about the consumer financial marketplace. So, in the past four years we’ve worked hard creating online tools to inform your financial decisions that are truly free – no charges, no ads, no referral fees.

Three financial tools you can trust

Owning a Home helps you understand one of the most important financial decisions you’re likely to make: getting a mortgage. It explains the complex options you have when shopping for a mortgage loan, for example whether to consider a fixed rate or an adjustable rate. It lets you play around with different factors to see how they affect interest rates. You can also find an easy to use checklist for the closing process that will prepare you to sign on the dotted line.

Paying for College helps students, students-to-be, and their parents compare financial aid packages. For people paying off student loans, Repay Student Debt, a part of the tool, helps you understand your options for repayment, gives you resources to avoid missing payments, and offers helpful resources if you’ve defaulted on your loan. You’ll find a sample letter you can send to student loan servicers (the companies that send you a bill each month), and tips on how to communicate with debt collectors.

In Ask CFPB, you’ll find expert answers to more than 1,000 questions about financial products and services including student loans, credit cards, mortgages, credit scores, credit reporting, getting out of debt, and more. Over four million people have found reliable and unbiased answers to common questions, and we’re adding and improving questions all the time thanks to your feedback. You can rate each Ask CFPB question, letting us know if the answer was helpful, too long, incorrect or confusing. You can also submit questions you think would be good additions to the collection.

We will continue to add more features to our tools, create new tools for other major financial decisions, and make sure our resources stay up-to-date as we and other government agencies update rules. Try out our tools, send us your feedback, and share them with your friends.

When key financial decisions arise in your life, you are not alone. You can trust that our tools and resources will provide you with accurate, unbiased information so you can make the financial decisions you believe are best for you and your family.

Applying for a mortgage can be complicated: Navid’s story

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Imagine you’re applying for a home loan. You’ve spent months calculating costs, comparing home prices, researching neighborhoods, and you’ve finally found a home you love and think you can afford. You meet with a lender and you’re assured that you will qualify for a loan to buy that home. Based on the lender’s assurances that you qualify, you pay a non-refundable earnest money deposit to the seller. After putting down a $12,000 deposit, you’re told that you do not qualify for the loan. Your non-refundable earnest money deposit appears to be lost.

That’s what happened to Navid and his wife.

“All of these things were new to us,” Navid said. In a very short period of time, we lost $12,000.”

Navid tried to contact the lender who had given him false assurances that he would qualify for the mortgage loan, but was getting nowhere. With no help in sight, he assumed his money was lost forever. Then he found out about the CFPB.

“One night we were watching the Daily Show with Jon Stewart and the director of the Consumer Financial Protection Bureau was the guest,” Navid remembered. “He talked about this organization and what they do.”

After the show, he decided to submit a complaint and soon after, the couple received full compensation and a formal apology from the lender that had assured him he would be approved for the mortgage loan.

“I came to [the] United States because I thought this is a country [where] there are rules and regulations, and the government is for the people. This is why I chose this country,” Navid said. He added that it’s a wonderful feeling to know that there are parts of the government that are trying to reach out and help people.

We know that buying a home can be complicated, and that’s why we’ve created tools to help home buyers understand and shop for mortgages. We’re glad that Navid and his wife got the help they needed, and we’re here for you, too! To share your experience or learn more from others, visit us at consumerfinance.gov/yourstory.

Updated July 22, 2015 to clarify consumer complaint and outcome.