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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2017

What’s Holding Back E-Mortgages?

Fully digital lending can’t occur until all systems can collaborate

The call to digitize the mortgage process is louder than ever, and with the number of e-solutions available, there appear to be no obstacles preventing mortgage companies from executing at least a mostly electronic mortgage transaction. Yet, the vast majority of mortgage loans originated today are completed in much the same way they’ve always been, with paper dominating the process.

So what’s holding the industry back? Seemingly, it’s the industry itself.

Currently, the concept of a fully electronic transaction appears to be disjointed. Mort-gage origination only represents one piece of the entire real estate transaction. The lion’s share of focus and attention, however, has been on taking this aspect of the process digital, without considering how it connects with and impacts the other elements of the transaction.

This insular approach to digitization and technology integration has stalled the industry’s efforts to complete fully-digital mortgage closings. This mires lenders, originators, Realtors and borrowers in a slow, arcane system that ultimately costs everyone time and money.

Disparate systems

What typically happens today is that a lender or mortgage company makes the decision to go digital and either builds a proprietary solution or integrates with whatever vendor they think is a good fit for their organization. From there, the company naturally assumes that other parties to the transaction — Realtors, borrowers, title companies, etc. — will take advantage of the lending institution’s electronic information.

Of course, it’s never that simple. In reality, consumer and property data is rekeyed many times throughout the underwriting and closing process, each presenting an opportunity for error or miscalculation.

On the mortgage side of the transaction alone, there are numerous connection points between the various service providers — appraisal, verification services, credit reporting companies, doc prep, quality control, etc. Even with the industry’s focus on digital, those connections aren’t always as tight or as sophisticated as needed.

A tremendous amount of application programming interfaces (API), integration and field formatting go into connecting disparate systems, and not every organization has the time or resources to dedicate to a significant development project each time they sign a new vendor. Furthermore, many systems on the market haven’t evolved much since their creation, which adds an additional layer of retrofitting in many instances, resulting in clunky processes and integrations.

These systems all approach data-handling differently, resulting in a disjointed, often manual exchange that has been unable to capitalize on the potential for process improvement via technology. The Mortgage Industry Standards Maintenance Organization (MISMO) has attempted to address this issue by creating a standard information-exchange language. That standardization only goes so far, however.

Because many lenders wanted to retain the ability to customize field names, MISMO standards were written to allow for the use of proprietary data fields (a.k.a. display-label text) as well as the enumeration “Other.” These variances make 1-to-1 data mapping problematic and prevent lenders from using these standards to build integrations across systems.

What’s more, the MISMO standard is only useful for exchanging data between systems within the mortgage industry. Realtors and title companies have their own sets of systems, most of which do not operate on a MISMO standard. Furthermore, the way those systems approach data can be vastly different from their mortgage counterparts, even though these systems are all designed to facilitate parts of the same transaction.

Transparency issues

With all the challenges the mortgage industry has faced in creating a digitally-connected mortgage process, it’s not surprising that the industry also has failed to build meaningful digital connections to other aspects of the real estate transaction. It is troubling, however.

Take funding, for instance. Currently, a lender wires a significant sum of money to the title company, with no real mechanism in place to track how or when those funds are disbursed. Adding to the complexity, many transactions involve a quick but complicated pairing of lender to settlement agent, with little real-time data about the reliability or experience of either party. Normally, there are no issues with these transactions, but when a funded closing goes bad, it tends to do so in a very big way.

Middleware can serve as an engine for the entire process, creating connection points between unrelated systems. 

Many lenders lack transparency in this process, so they must place a tremendous amount of trust in the title company. Most lenders want to know when disbursements are made, received and confirmed as received, and transparency would simplify their audit procedures.

Better connections between the lender and title company systems would make transparency, accuracy and the flow of information between parties easier to achieve. This also is true when considering the interaction between originators and Realtors.

Process hiccups

When shopping for a home, buyers usually obtain some sort of prequalification or preapproval, often at their Realtor’s suggestion. Almost all real estate contracts are contingent on the buyer receiving financing, and even though there may be a prequalification or preapproval in place, the buyer must still undergo the full mortgage application process.

It bears pointing out that homebuyers aren’t buying a mortgage loan. They’re buying a house, and the closer the industry can move the concept of the paperless transaction toward the initial decision to buy a piece of property, the more successful the industry will be in the long run in making that process fully digital.

Many consumers already e-sign a real estate contract, but then there is no seamless way to move the contract data to the title company or to the loan originator. Rather than securing the private information often contained in a real estate contract, a PDF or paper contract is e-mailed, faxed or hand-delivered to the title company and originator.

Online mortgage applications are now fairly commonplace, but once the originator has taken the application information, the settlement agent must be able to access some of that information as well. Otherwise, the transaction reverts to paper again.

In addition, because e-closings still represent anomalies rather than standard operating procedure, closing documents are often wet-signed at the closing table and sent to recording in a paper format. Even if the documents are e-signed, the recording jurisdiction still has a say in whether the digitally-signed document will be recorded or rejected, regardless of the lender or settlement agent’s expectations about the legality and recordability of the e-mortgage. This decision point represents another place where the digital process can break down because the industry just hasn’t connected the dots yet.

A way forward

Currently, the industry has two options for making these connections: Developing a cross-industry data standard or adopting “middleware” that can connect the dots and translate data across disparate systems. Given the lack of collaboration thus far between Realtors, loan originators, lenders and title companies, the cross-industry standard may be a “pie in the sky” solution.

There are systems available today, however, that can serve as an underlying platform to facilitate digital collaboration throughout the real estate transaction. These tools, called middleware, are designed to aggregate disparate pieces of information collected from one system and funnel them through a single portal that translates the information so that a receiving system can accept it.

For the real estate transaction, middleware can serve as an engine for the entire process, creating connection points between unrelated systems and driving the electronic exchange of information — without requiring Realtors, mortgage companies, lenders and title companies to abandon their chosen solutions in favor of a common cross-industry platform.

The benefit of this approach cannot be overstated. Each party in the chain has business reasons for selecting their current software, most of which involves the process each must follow to complete their portion of the transaction, and, by following their own paths, each party has been successful, more or less.

Asking them to abandon their formula for success, so to speak, and adopt entirely new processes and new software systems, would create an inordinate amount of chaos. This option would most likely doom the endeavor to failure. With middleware, on the other hand, each party can comfortably operate within the environment it has created while digitally collaborating with all other parties involved in the transaction.

•  •  •

As the push to go digital grows stronger, all parties — not just lenders and mortgage companies — must seek to adopt strategies that pull everyone into the transaction to create the seamless, continuous experience that today’s homebuyers expect. By using middleware to create a holistic approach to data, Realtors, originators, lenders and title companies can create the connection points needed to achieve effective electronic collaboration and facilitate a true, end-to-end paperless real estate transaction.


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