BLOG VIEW: As 2015 begins, we are closer than ever to seeing a truly end-to-end electronic mortgage process. However, although the desire is pretty clear-cut from both an industry and consumer perspective – and legislation is laying the groundwork – the e-mortgage still has to overcome a few roadblocks to be considered complete.
The industry's effort to pursue this practice is driven in large part by the real estate transaction itself. Before a mortgage is even initiated, this process is one that has evolved significantly over the years and today takes place – in large part – online.
Buying Begins Online
Consumers once spent hours driving around desired neighborhoods in search of ‘For Sale’ signs. Now, they are covering more ground faster by searching online.
According to the National Association of Realtors 2014 Home Buyers and Seller Generational Trends report, Gen Y currently comprises the largest share of first-time home buyers at 76%. This group uses the Internet first, ahead of all other channels, to shop for homes and mortgages. Consequently, they typically want to execute the home purchase process online and in a ‘modern’ fashion. Considering that consumers can find homes and their agents online, paper-based transactions seem like a step backward.
A true e-mortgage must start during this initial stage, with the integration of electronic documents and e-signature technology into the real estate sales process. With purchase agreements and closings becoming more complicated each year due to added layers of mandatory disclosures, consumers have more to review, and it can be easy to simply miss a required signature or initial on a document.
Historically, this meant the real estate agent had to expend valuable prospecting time to drive across town or incur the costs of preparing and mailing new documents. And, overlooked signatures are just one scenario associated with paper-based processes resulting in delays that frustrate all parties.
Today, technology is allowing consumers to complete required purchase, sales and financing documents from their computers or mobile devices. Real estate companies and agents that have already automated processes have noticed immediate, widespread benefits. In addition to fostering convenience and expediency, they have a constant, up-to-date archive of all activities, documents and signatures. Additionally, the industry, and the business world in general, largely acknowledge the security and legal acceptance of electronic documents; paper is more easily misplaced and wet signatures are more commonly forged.
Laying The Foundation
It is without question that the regulatory environment has posed challenges for the mortgage industry. However, changing legislation supports the e-mortgage. In January 2014, a long-awaited Federal Housing Administration (FHA) policy change (announced as Mortgagee Letter 2014-03) removed the barriers to using e-signatures in the FHA lending process by authorizing their use on origination, servicing and loss mitigation documents, as well as insurance claims and real estate owned sales contracts. With the prevalence of FHA loans today, this is especially significant, encouraging lenders to adopt these processes to boost business and improve the borrower experience.
As of Dec. 31, 2014, this update was set to expand again to include acceptance of e-signatures on mortgage notes as well. This addition paves the way for completely electronic mortgage originations; previously, any uncertainty around an originator's plans to sell the asset created barriers to using electronic documents.
The FHA's policy change is one demonstration of government agencies' heightened understanding of the e-mortgage's value. But, what is still missing? Where do we need additional policy changes or a firmer acknowledgement of its value for the e-mortgage to entirely take off?
Lending institutions have the legal green light, but now, like real estate agents, must integrate their origination systems with the technology. As the e-mortgage becomes a reality, companies that wait to add the appropriate systems will inevitably lose business to those poised to bring such convenience to consumers.
Beyond investments in the right tools, there also remains a need for electronic, remote notarizations. Although a few states have specific laws or programs that allow for e-notarizations, their acceptance is not consistent across the U.S. Another step still requiring a paper document, for example, is registration of properties at the county level – this is not yet possible through electronic documents and e-signatures.
In addition to reducing paper usage and costs enterprise-wide, electronic document presentment and e-signatures open a lender's business to prospective borrowers who might not be in its geographic proximity, but who can still receive the same level of service and attention.
It is important to remember that going paperless is not exactly fulfilled without the e-signature component. If customers cannot sign documents remotely, eventually an electronic form must be printed and, in that case, usually mailed in, faxed or hand delivered to an office. Incorporating e-signatures must accompany the use of electronic documents. Once the final roadblocks have been cleared, for many companies and institutions, this technology may be the last puzzle piece when it comes to offering an e-mortgage this year.
John Levy is executive vice president of IMM, a provider of e-signature technology and workflow solutions to a wide range of industries, including the mortgage banking industry.
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