The CFPB last week made news by publicly recognizing that borrowers felt overwhelmed in regard to the closing process. While the need for a technological solution is necessary, it is, respectfully, short sighted and naive to think that merely adapting the closing process can fix the problem.
Indeed, the CFPB suggests that borrowers are overwhelmed by information and do not have enough time to review it in connection with closing.
Before hurrying to completely redo the closing process, one has to wonder whether giving borrowers more time and/or a little less information at closing would actually resolve the situation in whole or part.
In reality most borrowers—even when given the time to thoroughly review closing documents—could not and would not try to thoroughly understand them.
As one who has had to read these materials carefully in regard to defending lawsuits, security instruments and mortgage notes are not designed to be read by just anyone—certainly not in any reasonable amount of time to conduct a particular transaction.
Moreover, the information contained in these documents includes terms and phrases whose meaning is not apparent to the average borrower and thus without a baseline of understanding, the information is of limited usefulness.
For instance, even if the borrower reads that they are taking out an adjustable mortgage with a 2.25 index rate, if the borrower does not understand the significance of the terms, it will not matter how much time is provided to read the document at closing.
Rather than simply focusing on the closing process, lenders should consider ways to increase the borrowers' understanding from the very beginning of the loan. Borrowers that understand the process and potential complications from the outset are more likely to understand what is happening and why, as well as the significance of information during the loan process.
Thus, closing becomes a final review—not a first and last review. Such processes lead to better loans, happier borrowers and better outcomes for lenders.
At present there are emerging products that aim on improving borrower knowledge and certainty throughout the loan process.
Lenders—and the CFPB—should look at these options as they may provide the real key to ensuring successful loans. Trying to learn everything about a loan at closing—no matter how much time is given—is simply a case of too little too late.
Ari Karen is an attorney at Offit Kurman.
