You’ve endured weeks of house hunting, looking for just the right home in the right neighborhood for the right price, you went through the agony of anticipation with your home inspection and appraisal and you’re finally there — it’s time for closing. You can finally relax now, since all the hard work is done, right? Not even close. Whether it’s your first or fiftieth closing, there’s nothing that increases the blood pressure quite like closing day.
In the past, closings have been fraught with problems like last minute changes to paperwork, a sudden increase in the amount of funding you need to close your loan and stacks of confusing legal documents that you’ve got to sign at the speed of sound. If you don’t sign, you can’t close, but there’s no way that the brief explanations the closing agent is giving you can possibly summarize all that paperwork, is there?
That was then — everything about closing is about to change because of a new eClosing pilot program that’s coming soon to your favorite lender and closing company. As part of their effort to increase customer understanding of real estate transactions and their legal responsibilities, the Consumer Financial Protection Bureau (CFPB) announced their intention to monitor and encourage eClosings as another facet of their “Know Before You Owe” initiative.
How eClosings Will Change Real Estate Transactions
The CFPB’s report, “Mortgage Closings Today,” outlines what was learned during an extensive examination of various parts of the closing process. They looked at historical literature, reviewed closing packages, looked at customer complaints, interviewed people in the banking and real estate industries and met with technology experts before concluding that not only were eClosings possible, they were a potential boon to buyers and sellers alike.
Once the pilot programs are complete, everybody will have access to eClosings — but what does this really mean for the average buyer or seller? There are several excellent benefits for both parties, including:
The ability to review documents at a slower pace. For buyers, one of the biggest perks to eClosings is going to be the ability to review their documents at their own pace. Instead of having only a brief glance over dozens of pages of legalese, buyers will get their paperwork a day or two in advance, via an electronic distribution so they can review the package and make a note of any questions they have for the closing agent.
A single electronic signature for all documents. If you’ve ever been to closing, you know it’s an exercise in signing all the things. Each page has to be signed, initialed or both, sometimes in multiple places. If you don’t sign, you don’t close, so most people sign blindly in hopes that the next page will be the last. eClosings utilize an electronic signature pad so you’ll only have to sign once and then simply tap the document in the right place to copy your single signature over and over again.
Faster document processing times. Closing documents aren’t just a pain for the buyer, they’re a huge pain for Closers. It can sometimes take weeks for you to get your deed or acknowledgement of filing simply because the papers didn’t arrive at the lender in the right order or your documents were slow to arrive at their various destinations. eClosings can be transmitted to the lenders, state agencies and any other applicable parties at the speed of email, so you’ll get all your paperwork processed faster.
Limited use of paper. Even when everything goes right the first time they’re printed, closing documents can eat up dozens or hundreds of pages of paper by the time all the copies are made for all parties involved. You may only have thirty or forty pages in your closing packet, but the sellers get copies, as do both sets of lenders and a variety of government agencies. By going electronic, eClosings can save a ton of waste, helping to protect the environment.
Increased security for personal information. It’s awfully hard to encrypt paper signatures and documents, so there’s always a risk that mail could be intercepted and your personal information swiped from your closing paperwork. eClosings will be carefully encrypted to protect that data from prying eyes, protecting your privacy.
Fewer mistakes during and after closing. Let’s face it, closing agents are only human, and they make mistakes. Sometimes they’re little ones, like spelling names wrong and sometimes they’re big ones, like misplacing part of a closing file. eClosing packets lend themselves to being much less prone to mistakes since there’s no loose paper and names, dates and addresses can easily be changed on the fly.
What Happens During an eClosing?
An eClosing won’t be all that much different for the buyers and sellers than closings in the past have been. Instead of signing page after page, you’ll simply sign an electronic pad, much like the ones you already use to sign for credit card payments and pharmaceuticals. Your Closer will record your signature at the beginning of the process, then you’ll simply tap the documents as you go to add that signature to each one. If you miss a signature, instead of learning about it days or weeks later, the documents will be designed to tell you before you can proceed.
It might not sound like much, but I couldn’t tell you how many of my clients over the years had to return to the closing agent to sign papers they missed. Unless your job is one that will let you roam freely day to day, it can be difficult to find the time to run back to the closing table to get your paperwork straight. Your electronic paperwork won’t have that problem anymore, and instead of leaving the closing table with a huge packet of papers, you’ll be given a CD with copies of all your paperwork so you can store it and find it easily should you need it again.
In the rare event that someone needs a “real” signature, your closing agent will take care of that, too. Slow adopters like government agencies may continue to need a few pages of paperwork for a while after eClosings become the norm, but two or three pages of paper is still massively superior to the 30 or more it used to take to close a standard loan.
Another great thing about eClosings is how quickly they can be transmitted. For most people, this will never be an issue, but once in a while you’ll be away or be living elsewhere when it’s time to close. In these cases, we used to rely on overnight package delivery services, but sometimes even UPS fails us. Now, your documents will be available to you on your cell phone, tablet or laptop, no matter where you are, and you’ll simply have to sign them and send them back. No muss, no fuss, no worrying if the papers ever got delivered.
Limitations to Implementation
If you’re planning to buy a house in the next few years, don’t get too incensed if your closing company doesn’t offer eClosings yet. Although the technology is already there and companies using eClosings are bound to save a significant amount of money and trouble, some will be slow to adopt this process for various reasons.
Rural areas with unreliable internet providers are probably going to be the last to adopt, because they genuinely are lagging behind in the technology necessary to make eClosings painless. These Closers obviously have the technology in their offices, but if the electronic closing packets are very large at all, their limited bandwidth may make downloading them akin to watching paint dry. This limited bandwidth issue will affect all rural buyers and sellers unless an excellent compression technique is implemented along with electronic documents.
Another barrier to implementation is going to come from the bigger banks. It’s not that they don’t want to adopt the technology, either — they stand to save the most money because of the sheer number of transactions they process each year. That volume is what is going to make them late adopters, actually. Big banks have lots of employees that will need to be trained, tons of systems that will have to be upgraded and lists of protocol to run through first. They’ll adopt eventually, though, especially when they see how popular eClosings are going to become.
The Bottom Line
eClosings aren’t coming to a Closer near you tomorrow, but they’re coming soon and you’re going to be so happy they are. Even if you’ve never had a problematic closing, your Realtor and banker have and they’ll breathe a sigh of relief on your behalf once errors are easier to correct and documents are easier to track. You’re going to love being able to see your documents long before time to sign and avoiding the pressure cooker all together.
If you’re interested in an eClosing, make sure to ask your Realtor and lender when you begin your home search. Even if they’re part of the eClosing pilot group, they may not offer them upfront right away for a number of reasons. Other options for eClosing sooner rather than later will come from your smaller local banks and credit unions, so call around if the first bank looks at you like you’re from Mars (or Venus) when you demand an electronic closing.
Freddie Mac has already gotten on the eClosing/eMortgage bandwagon, so I don’t expect it’ll be long before everyone will have this option. My guess is that in the next five years, we’ll see the industry switch over to favor eClosings almost exclusively. The real estate market is still uncertain, which means that being in a satellite industry is still a scary place. Banks and closing companies are still looking to cut costs anywhere they can to make them feel more secure — eClosings are cheap and reduce the risk of lawsuits, they’re nothing but good for industry players.