Four Imperatives as Lenders Evaluate eClosing Options
By Kevin Wall
March 11, 2019
Kevin Wall is president of First American Mortgage Solutions, Santa Ana, Calif.
Shifting consumer expectations, increasing market pressures and momentum for regulatory changes may make 2019 the year the mortgage and title industries accelerate the adoption of eClosing.
It's no secret that consumers demand a more digital, more efficient real estate closing process. At the same time, mortgage lender profits are under pressure amid a cooling housing market and rising mortgage rates. And, across the U.S., state legislation is maturing in areas of eNotarization and Remote Online Notarization. These factors, along with widely available eSignature standards, are poised to accelerate broader acceptance of fully digital eClosings in real estate transactions in 2019.
Consider also that 65 percent of lenders who expect profit margins to increase in the next three months believed technology would be the most important reason for the expected increase, according to Fannie Mae's fourth quarter 2018 Mortgage Lender Sentiment Survey (http://www.fanniemae.com/resources/file/research/mlss/pdf/mortgage-lender-sentiment-survey-findings-q42018.pdf).
Settlement providers are adapting as well. First American Chief Economist Mark Fleming recently surveyed title agents and real estate professionals and found 65 percent of respondents anticipate needing software support for Remote Online Notarization and eClosing, and secure collaboration and communication portals, in the next 12 months (https://blog.firstam.com/economics/will-fintech-adoption-among-real-estate-professionals-accelerate-in-2019).
It appears that in 2019 the industry may make significant strides toward delivering a real estate transaction closing experience that aligns with the digital home search and loan application experience that has become commonplace. As with most opportunities, there are real challenges to overcome. Lenders are wise to thoroughly evaluate how to best offer eClosing options to consumers, as there are many important considerations to study and some of the industry hype around eClosings can be misleading.
Settlement providers have a unique perspective on many of these challenges given their role in closing real estate transactions. First American recently launched an eClosing solution and is engaged with multiple customers on pilot tests. In the process, we've gained significant experience and uncovered some important findings that, if handled appropriately, may have the ability to enhance the progress towards adoption of eClosings (https://www.firstam.com/news/2018/eclosing-solution-launch-20181015.html).
1. The Workflow Matters
Switching from a traditional paper-based signing event to an eClosing with a digital signing event requires more than the ability to eSign documents on a portal. Coordination, communication and document preparation are paramount regardless of whether the consumer signs with a pen or the click of a mouse.
In order to scale, the workflow must be more efficient than today's paper process for both the lender and the title and settlement provider to accelerate adoption. Minimizing any additional work needed by loan processors or title and settlement agents to prepare for an eClosing versus a paper closing can facilitate greater adoption, which will help lenders more quickly reap the potential benefits of eClosings--enhanced efficiency and reduced cost to close transactions. Understanding the full signing process, including scheduling, communication, coordination, lender and title document preparation and final execution, is critical to creating an improved, digital version of the paper process.
2. Recordability is in the Eye of the County Recorder
There are thousands of county recorders in the U.S. and their views on the recordability of eSigned and native digital documents, which are used in RON and in-person eClosing transactions, can vary greatly. We've interviewed dozens of staff at county recorders in states that recently passed legislation supporting RON eClosings, and found varying degrees of readiness for eSigned and native digital documents. That's important because, if documents do not adhere to state and local laws, eSigned debt obligations can be reversed in bankruptcy court, for example.
3. Build it vs. Buy it
Mortgage lenders have a variety of options on how to approach eClosing, including building their own proprietary technology, purchasing an eClosing platform from a technology vendor or working with an established settlement provider to handle digital settlement. Each mortgage lender will choose the path that best serves their customers and operations. However, for lenders who choose to bring some settlement processes in-house, it's important to remember that doing so entails assuming the risk, control and coordination of the signing event and signing process, which many lenders and lender staff do not traditionally coordinate.
Similarly, most lenders work with many different settlement providers. So, lenders that choose to purchase or build their own eClosing platform will need to train their settlement providers on how to use the lender's platform, including how to incorporate the title documents into the eClosing package. In a purchase market, and with typical industry turnover rates, this training process becomes an ongoing effort and expense.
4. Settlement-Driven eClosing
Some lenders may prefer their title and settlement provider handle eClosing and thus maintain the coordination and management of the signing event, along with the responsibility and risk associated with it. Each individual lender's approach to eClosing will differ somewhat and title and settlement providers need flexibility to accommodate nuances between various approaches. This would, however, eliminate the need for lenders to own, pay for and manage the process and platforms used.
While the changes that come with bringing eClosing to the market are new, lenders and settlement providers have a long history of working in concert to complete real estate transactions with high quality. Open communication and collaboration will continue to deliver the best results for lenders, settlement providers and consumers as the real estate industry marches toward the secure, scalable adoption of eClosings.
Disclaimer: This article is intended for educational and informational purposes only. The views and opinions expressed in this article are solely those of this author, and do not necessarily reflect the views, opinions, or policies of this author's employer, First American Mortgage Solutions.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)