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At first thought there does not seem to be a common thread between mortgages and Earth Day but when you consider the volume of paperwork involved in the mortgage process the connection becomes more clear. Mortgage document overload represents a significant concern for both borrowers and the environment.
Mortgage paperwork can overwhelm even the most experienced borrowers. In some cases borrowers are required to review and sign over 50 loan documents. According to the recent FREEandCLEAR Mortgage Survey, when asked to select the most challenging part of the mortgage process, the number one response was paperwork which garnered 56% of responses — more than four times the second place response of borrower qualification.
Borrowers have good reason to feel confused and burdened by mortgage paperwork. The table below outlines an extensive list of documents that borrowers may encounter over the course of the mortgage process. The table also details the approximate number of pages for each document. Although mortgage documents and length vary depending on several factors such mortgage program and type as well as borrower location, the table illustrates how borrowers can drown under a sea of paperwork.
Most of the documents listed in the table serve a legal or regulatory purpose and are intended to inform or protect the borrower; however, we may have reached the point where more is less when it comes to mortgage paperwork. The mounds of documents and pressure to close can create a challenging dynamic for borrowers. In the worst case scenario, borrowers eager to close their mortgage sign whatever papers are put in front of them at the closing table without fully understanding the documents.
While mortgage paperwork poses a confusing and cumbersome challenge for borrowers it also has significant environmental ramifications. In recognition of Earth Day, we quantified how mortgages impact the environment.
According to a recent Federal Reserve Bulletin on residential mortgage lending, there are on average 7.8 million mortgages a year. This figure is based on the average number of purchase, refinance, home improvement and multifamily mortgage originations between 2011 and 2015, the most recent year for which data are available. 7.8 million is a lot of mortgages and that figure does not even include the number of loan applications that did not successfully result in a closed loan, which was almost five million in 2015.
When you multiply the large number of mortgages by the high number of mortgage documents the product is a massive amount of paperwork and tremendous environmental impact. Specifically, 7.8 million mortgages per year times 280 pages of paper per mortgage yields almost 2.2 billion sheets of paper consumed by mortgages annually.
To quantify the environmental impact of 2.2 billion sheets of paper we used the Environmental Paper Network Paper Calculator. (The Environmental Paper Network (EPN) is an organization that works for social and environmental transformation in the production and consumption of pulp and paper. For more information visit www.papercalculator.org).
According to the EPN Calculator, 2.2 billion sheets of paper equals approximately 4.4 million reams, or 11,000 tons, of paper. The EPN estimates that 11,000 tons of paper require over 41,000 tons of wood to produce, which is equivalent to approximately 264,000 trees. So in short, mortgages consume approximately 264,000 trees annually.
Although double-sided printing and digital documents reduce paper consumption in the mortgage process these practices are more than offset by the millions of loan applications that did not result in a mortgage as well as lenders’ internal document retention requirements. In light of these factors we believe that 264,000 tree consumption figure is likely conservative. While the increasing use of recycled paper is certainly positive, there is little doubt that the mortgage industry’s impact on the environment and trees is profound.
And the environmental impact of mortgage paperwork is not limited to trees. In addition to wood usage, paper production involves considerable energy and water consumption and generates significant greenhouse gas emissions and waste. The table below provides a more complete estimate of the environmental impact of 2.2 billion sheets of paper and illustrates that mortgage documentation is as tough on the planet as it is on borrowers.
So what steps can be taken to address both the borrower overload and environmental impact caused by mortgage paperwork? The adoption of online and mobile technologies that permit borrowers to digitally upload their financial paperwork is a good start but these technologies are not widely implemented and do not change the number of documents involved in the mortgage process. Changing regulations that prohibit the use of digital signatures for most mortgages could also have a positive impact but raises a different set of borrower concerns.
“Less paperwork” is the obvious answer to both borrower and environmental challenges but it seems unlikely that government regulators will eliminate or streamline any documents that are designed to protect borrowers, especially as the long-term effects of the the mortgage crisis continue to linger.
Big problems usually lack easy solutions and that certainly applies to the issue of mortgage paperwork. Despite meaningful obstacles, lenders and regulators have a tremendous opportunity to collaborate to implement solutions that address mortgage paperwork overload and move the industry forward. Borrowers and mother nature are counting on it.