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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2007

Going Electronic

E-mortgages are coming, and prepared brokers stand to benefit

r_2007-11_Dubinsky_spotAs volume and commissions in the residential market continue to decline, smart originators must look for ways to run a lean operation and either reduce costs to themselves and their clients or to add value in other ways.

One place to start is with the stacks of paper around you. There’s a way to get rid of those stacks that will save you money. It’s called electronic mortgages, or e-mortgages.

Now is a great time for brokers to learn more about the e-mortgage process, the latest developments in the industry and how they can benefit. 

Emergence of the e-mortgage

Compared to similar processes in other industries, it’s taken some time to bring mortgage origination into the electronic age. Given the complexity of the e-mortgage process, however, as well as the number of parties involved, this time was necessary to make the system run smoothly.

The origination and funding of one e-mortgage requires lenders, investors, document custodians, title companies, technology companies, county recorders and standards organizations to work together toward a common goal. Anyone who has been in this business for more than a day knows how difficult this can be.

The definition of what an e-mortgage actually is has changed in the past few years as the idea became a reality. The Mortgage Bankers Association describes an e-mortgage in its current form as: “A mortgage where the critical loan documentation — at a minimum the promissory note, and preferably also the security instrument and other closing docs — are created electronically, executed electronically, transferred electronically and stored electronically, aka, the paperless mortgage.”

The genesis of the e-mortgage revolves around the creation of Securable, Manageable, Archivable, Retrievable and Transferable (S.M.A.R.T.) documents, which use data exported from loan-origination systems. These documents, the same ones you would usually present to the borrower at the closing table, can be e-mailed to a prospect in S.M.A.R.T. form before closing day. This can save time and money for brokers, borrowers and lawyers.

Not only can borrowers review S.M.A.R.T. docs from their home, but they also can sign them. At a minimum, borrowers can electronically sign the 1003 loan application, all of the upfront disclosures and any additional disclosures under most circumstances. How far you can go from there depends on the lender and investor. In some cases, usually on conforming loans, the note can be signed electronically, as well.

Recent developments

One recent e-mortgages move came from document custodians creating an electronic version of warehouses used to store paper loan documents. Concerns about data security and accessibility by auditors and investors require much care and testing, but several custodians have completed the electronic transition. 

Two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, also are starting active e-mortgage initiatives, and both GSEs have started to accept e-mortgages on a limited basis. While it hasn’t happened yet, Wall Street investors could eventually begin accepting electronic mortgages as well. This would increase the number and types of loans eligible for electronic execution. The number of lenders attempting these loans also is growing.

Now it is up to brokers to learn how to join this new wave of electronic opportunities. As many originators learned during the recent boom, those that arrive late to the game could be left behind.

Benefits for brokers

It is considerably more difficult to find a qualified borrower and much more competitive to close that borrower than it was just one year ago. The time between the initial consultation and borrower commitment — even if it’s only a verbal commitment — is imperative. That time can be torture for an anxious originator.   

E-mortgages can ease this period of concern because they let brokers get their documents in front of borrowers faster. This provides time for a more thorough review by borrowers.

Borrowers also can use this time to determine if they agree with the terms of loan — which can lead to a faster commitment to close.

By sending electronic documents to the borrower, brokers also can learn if the documents have been accessed. This provides brokers with a better picture of a prospect’s current mindset.

Further, the ability to eliminate paper and third parties — such as overnight services — from the mortgage transaction can result in a more efficient, less costly process.

Despite these benefits, many brokers have sided against e-mortgage for years, largely because of concerns that lenders would use such technology as a means of eliminating the broker from the process.

The mortgage industry, however, likely will never remove humans from the sales process. Even after documents are transmitted electronically, borrowers will continue to benefit from the guidance of knowledgeable brokers when making mortgage decisions. The advent of the e-mortgage has always meant to put couriers and fax-machine salespeople out of work — not brokers.

The next step

Brokers must begin educating themselves on the electronic-mortgage process and keep abreast of recent developments, such as Mortgage Industry Standards Maintenance Organization (MISMO) data standards for e-mortgage transmittal. They also can begin thinking about all of the hassles created by paper in the mortgage process and what it would mean for business if they were removed.

After all, nobody wants to be the only one pushing paper when the next boom comes.


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