Re-thinking 'E,' Part 2: Just How 'E' Can You Be?
By Brian Boike
April 1, 2019
Brian Boike is Director of Product Strategy with Simplifile, Provo, Utah. Contact him at email@example.com. This is the second of a two-part series.
In a time when full e-closings are not yet possible, the question becomes, "How should lenders proceed?" Today, every loan can be executed digitally to a certain extent, and even if the loan cannot be completely executed electronically, there are still enough benefits in even a partially digital mortgage execution to make it worth the effort, as noted in Part 1 of this series.
For example, e-signatures have been legally accepted since the passage of the Electronic Signatures in Global and National Commerce Act in 2000, and e-delivery of documents is also a widely accepted industry practice. Using these two strategies--to allow borrowers to review their closing documents and e-sign those that do not require notarization--can dramatically decrease the length of the closing process, leaving only a handful of documents to review and potentially wet-sign on the day of closing. With this simple practice, lenders can begin to shift their mindset away from paper and loan participants, such as settlement and title, and move their procedures in a digital direction.
Looking further downstream, e-recording is one of the most widely available digital real estate processes in use today, covering more than 80 percent of the U.S. population. Now that Fannie Mae and Freddie Mac have eliminated the requirement for seller/servicers to submit paper copies of recorded security instruments, there are even fewer barriers to e-recording and even more incentives for lenders to encourage their title partners to e-record. What's more, e-recording provides significant cost savings by eliminating shipping/delivery fees and dramatically decreases recording turn times from weeks to minutes, in some cases.
Furthermore, e-recorded documents can be electronically returned to the lender's LOS, providing lenders with an additional digital "lift." This digital delivery to the lender eliminates several time-consuming post-closing tasks like tracking down outstanding or missing documents from settlement and/or scanning paper documents to return them in electronic format to the LOS--all of which allows lenders to deliver their loans to investors faster and eliminates the potential for holdbacks. From a compliance perspective, e-recording also ensures lenders have the actual recording fees rather than estimates, which helps streamline both the CD reconciliation and general audit process.
To make each loan as "e" as can be, lenders need to address two major questions. The first is, "How ‘e' can I be based on where I operate?" For example, depending on the jurisdiction at play, many lenders can take advantage of digital processes like remote online notarization (RON) and/or e-recording. Knowing which digital processes are permissible in each operational jurisdiction gives lenders a true scope of just how "e" their operations can be. To do this, lenders need to find a trusted resource that can offer guidance on e-eligibility at a jurisdictional level, especially for digital processes that occur downstream in the transaction, such as e-recording.
Once the lender determines their individual e-eligibility, the next question that must be answered is, "How do I adjust my current operations to make it happen?" Lenders must evaluate their current operations to identify which parts of the production process can be taken digital based on what's legally permissible the jurisdictions in which they operate. This evaluation should not be limited to front-end, borrower-facing process and must include back-end operations, such as post-closing, in order to drive ROI and scale.
Most lenders can execute a hybrid e-closing, and for those that ready to take the full e-mortgage plunge, there are a growing number of warehouse banks and investors ready to help lenders make the transition.
Ultimately, every loan can be a little bit "e" as almost all investors will accept electronic ancillary documents, allowing a lender to interact electronically with the borrower from application, disclosure, and most of the closing. This provides a consistent experience for the borrower, and, maybe more importantly, provides a consistent interaction for a lender's closing staff and their interactions with settlement.
At the end of the day, letting your digital strategy fall off after the closing is like forgetting to collect money from the closing table. Lenders must connect each leg of the loan pipeline by making it digital in some way. By incorporating these processes as part of a longer tail digital mortgage strategy, lenders can still reap the benefits of taking their mortgage process to its digital limit today while waiting for additional components of the e-mortgage process--such as widespread acceptance of electronic and remote notarization, as well as e-notes--to become a reality.
(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.)