Private Investors: It's Time to Take a Second Look at RON
By Rick Triola
August 12, 2019
Residential and commercial real estate expert Rick Triola is Founder and CEO of NotaryCam, Newport Beach, Calif., a provider of remote online notarization and identity verification systems. He is a 2018 winner of the MBA Insights Tech All-Star Award.
Remote online notarization--RON--is an inevitability. Already, nine states--Virginia, Montana, Texas, Nevada, Minnesota, Michigan, Indiana, South Dakota and Tennessee--allow RON transactions to be conducted by licensed notaries within their respective states, with three more coming on board by the end of 2019 and another nine by the end of 2020. And nine other states have introduced RON bills during their respective state legislative sessions, so this tally could grow before the year's end.
For private investors, RON presents an opportunity to effectively compete against larger (i.e. federally chartered) investors by providing an outlet for lenders ready to advance their digital mortgage strategy. Thus, it's high time private investors took a second look at RON and what it means for the larger digital mortgage.
First, a quick primer. Often, the terms "eNotarization" and "remote online notarization/RON" get conflated. These are not the same. Both use an electronic notary stamp and eSignatures, but with RON, neither the notary nor the document signers need to appear in person for the notarial act to be legal. Instead, the notary and signers can "appear" before each other using a webcam or other audio/video equipment.
Having clarified that point, let's examine the role RON plays in the larger digital mortgage ecosystem. On its face, RON seems like an incredibly small piece of the eMortgage puzzle, but in reality, RON is what allows lenders and title/settlement agents to conduct remote online closings. There has been a great deal of hype around the ability to conduct eClosings, but the truth is that the vast majority of eClosings are still happening in much the same way that paper-based closings do--with all participants gathered around a physical closing table.
Alternatively, ROCs can be conducted anywhere, anytime, thus eliminating the need for all parties to congregate in a single location to complete the closing ceremony. These transactions are also typically faster, usually being completed in 30 minutes or less. Otherwise, there's not much else that differs between a ROC and a regular closing, and yet, larger investors have been quite gun-shy about purchasing loans that have been remotely closed via ROC.
Part of the reason for the reticence has been lack of nationwide adoption, which is understandable. When an organization is operating at a national, or in some cases an international, level, variances and one-offs create more problems than they solve, and without a 50-state consensus on RON, it's quite simply not worth the hassle for larger investors to make the necessary changes to their operations to begin accepting these one-off transactions.
However, it is important to note that the National Association of Secretaries of State, the American Land Title Association, the Mortgage Bankers Association and others have all offered their full support of RON, and as evidenced earlier, RON is rapidly gaining steam at the state level so it is really only a matter of time before it becomes a legal practice nationwide.
For others, the issue comes down to security. Identity verification is a key component to the notarial act, and there are often concerns regarding how this is satisfactorily accomplished in a remote transaction. What typically happens in a RON transaction is the document signer answers a series of knowledge-based authentication question in addition to submitting a valid ID for automated analysis in order to verify their identity to the notary. What's more, the entire transaction is recorded, providing a verifiable record that the notarial act was completed in accordance with all relevant laws and regulations. Thus, RON transactions are actually more secure than their traditional counterparts.
What may also be of concern is the ability for lenders to secure a title policy on a RON/ROC transaction. Historically, the major title underwriters have been skeptical about the legality of RON/ROC and withheld issuing policies as a result. However, two of the major insurers--Fidelity National Title and Stewart Title--have both recently announced that they have begun conducting RON/ROC transactions so the tide seems to be turning in that regard, as well.
Of course, there are those that are simply risk-averse to the point of being short-sighted. In their minds, RON and ROC are new and, therefore, not to be trusted despite whatever evidence is presented to the contrary. Considering how long it took some investors to begin accepting documents with eSignatures, much less eNotes, this stance is not surprising, though definitely disappointing.
Fortunately, private investors are far less myopic in their thinking and have the ability to be nimbler than their larger competitors. With a keen understanding of RON and ROC in hand, private investors can capitalize on this opportunity and get in on the ground floor of the next generation of mortgage lending.
(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 email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)