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   ARTICLE   |   From Scotsman Guide Residential Edition   |   March 2018

Closing in on an eMortgage Standard

A future with fully digital loans is not far away

Establishing the eMortgage as a standard practice has long been a highly sought-after goal for the mortgage industry. Lately, there have been a lot of promising developments happening in the world of the eMortgage — so many that it can be difficult for mortgage professionals to keep up with the industry’s progress.

It’s important to keep an eye on the progression toward an eMortgage future to ensure continued movement toward this beneficial goal. Given the recent advancements in technology, the industry is now in a better position than ever to make digital mortgages the standard.

To appreciate where we currently stand in the effort to establish eMortgages as the transactional standard, however, it’s important to understand the significant progress the industry has made toward digitizing the complex eClosing process.

Some history

The first step to accommodating full eClosing was the establishment of the necessary legal and process infrastructure. Two crucial developments were the adoption of the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN) in 1999 and 2000, respectively, which set the groundwork for e-commerce and electronic signatures. The creation in 2004 of the MERS eRegistry as a method for establishing the legal ownership of an electronic note was an essential factor in confirming the note’s validity.

Support from the government-sponsored enter-prises (GSEs) also bolstered early eMortgage momentum. Fannie Mae, for example, began buying electronically closed loans in the early 2000s and more recently rolled out its Day 1 Certainty initiative to help facilitate digital lending.

Finally, the MISMO Version 3 standards can help ease the industrywide shift to eMortgages. MISMO is a standards-development group serving the mortgage industry.

The MISMO Version 3 format ensures consistent data standards across all sub-processes of the mortgage transaction to make collaboration easier for all parties essential to the process. In addition, the SMART Doc Version 3 structure provides a universal intelligent electronic-document, or eNote, format.

eClose today

Full eMortgages, those that are entirely paperless, offer the maximum benefit to lenders and other mortgage professionals. The eClosing is a crucial part of that process but has, historically, presented the biggest challenge to the industry. Even with promising recent developments, fully electronic closings are still few and far between.

The eClosings taking place today are mainly hybrid in form, meaning they include at least one paper-based sub-process. There have been a few entirely paperless closings completed in recent months, but they’re still the exception rather than the rule.

Given the recent advancements in technology, the industry is now in a better position than ever to make digital mortgages the standard. 

It is time for the industry to look forward to finally making the dream of a mainstream eMortgage a reality. The most substantial challenges remaining include enabling remote eNotarization, creating clarity around the legal structure, advancing the technological environment and dispelling common misconceptions about eMortgages.

Remote eNotes

The eNotarization process has been the most challenging aspect of the eClosing. The difficulties in executing a proper eNotarization stem from uncertainty in the legal environment and over what’s required to ensure that electronic notarizations are valid, especially for mortgage professionals and lenders working in multiple states.

The uncertainty is a result of a patchwork of laws across the U.S. that can be difficult to navigate. Although some states simply enforce the legality of electronic notarizations through ESIGN and UETA, others have enacted state-specific laws and still others have yet to clearly state whether they’ll recognize electronic notarizations.

Further complicating the matter is that some states — Virginia and Montana being two examples — have taken eNotarization a step further to legally recognize remote eNotarization. During a standard eNotarization, the notary witnesses the closing ceremony in person and then notarizes the necessary documents electronically.

Remote eNotarizations take essentially the same form, except that the notary witnesses the ceremony and confirms the signer’s identity over a webcam instead. Remote eNotarizations add further convenience to the closing process, because borrowers do not have to coordinate meeting in person with the notary to complete the transaction.

Although remote eNotarization should be legally recognized because of state reciprocity, many in the industry have been hesitant to get on board with this practice. Perhaps most hesitant are title underwriters, who fear that a discerning county recorder may refuse to record the loan if they see that it was remotely eNotarized, leaving ownership in question.

The GSEs have been supportive of remote eNotarizations, actively working to help the industry feel more comfortable conducting this practice. Both Fannie Mae and Freddie Mac have proclaimed that they will accept remotely eNotarized mortgages from the states where they are legally recognized, further fueling eClosing momentum.

The tech landscape

There are eClosing solutions now available to mortgage professionals that are more robust, comprehensive and flexible than ever before. In fact, mortgage companies need not wait for states to pass legislation to make the closing experience better for the borrower.

With the right technology on hand, mortgage originators can already begin transferring much of the mortgage process to a digital setting to extend more convenience and flexibility to their borrowers. It’s already possible, for example, to utilize eNotes and eRecording with nearly every loan destined for GSE delivery.

As we witness the evolution of technology, we also see perceptions of the digital mortgage process evolve as well. 

The ideal technological infrastructure for eClosing is a fully integrated solution that can support the key aspects of the process within a singular platform. Mortgage professionals should be able to generate electronic, data-driven documents through direct integration with their loan origination systems — including SMART Doc eNotes — and deliver those documents electronically to a lender and settlement agent.

They also should be able to support electronic signatures from the borrower and electronic notarizations from closing agents as well as register eNotes electronically through the MERS eRegistry. In addition, mortgage professionals should be able to electronically record loans with county recorders and store documents within a secure eVault, all without leaving the platform.

As eClosings become more prevalent, this technology will only continue to become more powerful and advanced. Technology vendors will continue to update and optimize their solutions as eMortgage further evolves, benefiting all parties involved in the transaction.

Changing perceptions

As we witness the evolution of technology, we also see perceptions of the digital mortgage process evolve as well. With technology becoming increasingly essential to our daily lives, more and more people have become comfortable with — and even prefer — conducting financial transactions online.

Millennials are starting to buy more homes, and they demand a digital and mobile experience, which is quite different from previous generations. Because the eMortgage is a relatively new concept for the industry, however, and likely an even newer concept for consumers, information around the benefits to both mortgage originators and borrowers still needs to be provided.

Lenders are under increasing pressure to compress the loan cycle, sell loans and reduce warehouse spreads amidst ever-present concerns around protecting the safety and soundness of data. Many of these concerns can be alleviated by recognizing that eClosing technology serves to reduce loan-cycle times and costs, and is actually safer for lenders and mortgage professionals than paper transactions because the digital-loan process offers more robust methods of authentication.

Borrowers also have lingering misconceptions around the mortgage process. The Consumer Financial Protection Bureau recently asked borrowers what they felt were the biggest issues associated with closing a home loan. The most common complaints the bureau received related to having too much paperwork to review, not knowing who to talk to when they had questions and coping with the overwhelming nature of the process.

Mortgage professionals can address these concerns through education and by raising awareness around how technology can alleviate these issues. They should provide borrowers with the information they need to feel more empowered in the closing process.

•  •  •

The mortgage industry has made tremendous progress toward making full eMortgages the transactional standard. There are a few challenges to overcome, but given the evolving and integrated technology offerings and common industry focus, eClosings are well on their way to becoming the future norm.


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