by Don Iannitti, President, Document Systems, Inc.
"On the Plains of Hesitation bleach the bones of countless millions who, at the Dawn of Victory, sat down to wait, and waiting ... died. "
George, W, Cecil (under the pseudonym William A. Lawrence)
December, 1999 - There are currently two pieces of legislation pending in Congress that will, if passed, change forever the way mortgage lending is transacted. Just in time for the New Century.
By the time you read this, Senate legislation that would allow borrowers to submit electronic signatures for online transactions may already have passed. The first usage will most likely be for Truth In Lending and RESPA disclosure statements, but the implications for our industry go well beyond that.
The House bill would go further than the Senate's, setting a national standard for digital signatures and overriding state laws that currently prohibit their use.
While Congress works out the details, it's clear that we are at last on our way to the truly paperless office.
Finally! Probably no other business outside of government is so heavily paper-intensive as mortgage banking. We know first hand: Our firm processes between 7 and 10 thousand orders a day, each one averaging 40 to 50 pages!
It's easy to forget as we gaze at our computer terminals that as recently as the early 90s, the entire mortgage lending process - start to finish - was done by hand. Then, somebody introduced a loan originator to a computer, and the mortgage industry began to crawl out of the dark ages.
Ever since, brokers have been at the forefront of technological change. They were the first to use laptop computers, and the first to use off the shelf origination software.
The document processing area has been fast evolving as well. Today, it is possible to receive, process and deliver a complete set of loan documents in just a minute or so, depending on the speed of the sender's modem.
Thanks to the Internet, that loop from originator to document processor and back continues to shrink to the point where, what used to be the most tedious and time-consuming part of the process is now the fastest and most reliable.
Where work remains to be done is the part in the middle - loan processing and underwriting. It's still unwieldy, time-consuming and labor-intensive.
But now, as technology is enabled by this new legislation, the back office functions have an opportunity to catch up.
What will make that happen is the immediacy of the Internet, with its unrivaled tracking and data capabilities, Brokers and correspondents need to know - in real time - where a loan is in the pipeline, and when certain milestones can be expected.
Access to information will have a direct impact on productivity of the closing.
For one thing, the need for speed will put increased pressure on originators. Speed has always been important for the larger brokers, but now there will be eve more pressure, as originators better understand the correlation between processing time and closing rates.
The unique information sharing capabilities of the Net means more eyes can see what's happening, so if you're behind the eight ball and not getting out of your own way, it's going to be obvious a lot sooner.
Still, many online leaders are not doing anything that is radically different than other mortgage companies. What we're seeing is that the companies that were efficient before, still are, while those that weren't, still aren't.
After all, the Internet is all about speed: Web surfers have grown accustomed to the instant gratification of online browsing. So when an online lender is still processing documents the same old way, they are essentially forfeiting their advantage.
A useful parallel can be found in the experience of online retailers who are learning some valuable lessons from brick and mortar stores. As many discovered this past holiday season, speed is irrelevant without good order tracking and fulfillment, distribution and shipping.
In other words, to be successful in cyberlending, one still has to execute the unglamorous fundamentals just as well as the high profile lead generation and application progress.
Fortunately, now high performance document processing systems can cover a multitude of lender and broker inefficiencies to help speed the closing process - even for loans that have been languishing in underwriting.
Click and deliver
Getting docs off the web - rather than waiting for an overnight courier - is fast becoming the industry standard.
That's not revolutionary. The sophisticated document companies have been doing it for some time. It's certainly one of the most popular things we've done.
Still, I'm constantly amazed that some originators and lenders continue to pass paper documents back and forth across the country. The slowdown is magnified when it's an online lender, because their customers have higher expectations.
I believe that will change dramatically this year as wholesale tenders start feeling the pressure from brokers to deliver document packages in seconds instead of days.
In addition to blinding speed, another advantage of Net-delivered documents is that they can be instantly printed, retransmitted, modified or filed.
When an originator downloads a set of documents, he also receives a special combination code, which in turn can be emailed to another party, such as a title company. Armed with the code, the title company could then download their own set of the same documents. The whole process only takes a few seconds.
Easier still, the originator can arrange for the document company to email documents directly to all appropriate parties.
Until now, most of the burgeoning online lenders have been concentrating on simply getting a stake in the ground in a brand new market space. But as the market becomes saturated, competition will spur them - and all mortgage bankers, for that matter - to greater efficiencies.
In the coming year, I think you'll see more and more lenders asking document companies to help them develop websites that are truly interactive and customer-friendly. All that is required is a field on the lender's home page for entering the originator's code number.
The field would actually be a function of the document company that would do the actual processing. The process is completely transparent, and the document company remains anonymous.
So now the lender that is drawing the docs will have an incredibly efficient way to get them back to the broker, to a closing agent or to wherever else they're needed through the web, using the document company as a middle man.
Meanwhile, every processed set of documents is automatically posted on the lender's code-protected website. Not only does the wholesaler benefit by offering better customer service, but also the entire process is speeded up by as much as 48 to 72 hours.
When you think about it, the system makes perfect sense, especially for wholesalers who find document processing to be an expensive and time-consuming bottleneck. The technology to do that is here today. It doesn't require any hardware or software configuration other than simply creating a web page.
Keeping brokers in the loop
Any broker who has ever lost a closing while waiting for documents to be delivered understands the value of getting ready-to-sign paperwork in under a minute. But now Web-based systems also provide a full range of real time information that, in turn, helps him provide much better customer service.
Here's how it could work: The lender would decide exactly what documents and/or information they want each broker or correspondent to be able to access. Typically, when a broker enters his login code and password, he would see all of the open loan files the lender has for him. The same would apply for any authorized user.
This information will allow a broker to keep his borrowers up to date and comfortable with the closing process. But it also empowers the originator to apply pressure when the system hits a snag.
The future is now
Today, all of this happens at blinding speed over the Internet. Documents can now be delivered in just about every imaginable way: emailed, pasted on a website for pickup, faxed (without headers or footers) to multiple locations, processed and, or course, delivered by overnight courier.
However, as more and more clients come on-line, the traditional methods of delivery are used less and less.
Meanwhile, all of these high-speed ways of getting paperwork from point A to point B will no doubt be refined, but it's hard to imagine a delivery system that hasn't already been invented. So I wouldn't expect to see the same magnitude of change as we have already seen, but there probably will be changes in the functionality of the documents themselves.
Imaging the future
Congressional approval of electronic signatures will put into motion a whole new way of doing business which will eventually allow the entire mortgage transaction to be online.
21st Century borrowers will be able to review and execute all of the closing documents before they are finalized. That way, when they get the final docs to sign there will be no surprises.
Cyberlending will also allow a lender to guide borrowers through the regulatory and compliance issues right over the Internet. Already, HUD and the Federal Reserve have given their blessings to online disclosure, although congressional approval still remains.
As a natural consequence, digital technology promises to reduce the amount of human involvement with the process, lowering costs and improving accuracy. The first thing we are likely to see is that the whole loan file - at least in paper form - will no longer have to be sent to complete the transaction.
The fact is, in an electronic/database age, many of the paper documents that have traditionally been the backbone of the mortgage industry, will no longer be necessary. Not just the number of documents, but the paper they're printed on.
Having said that, I predict the number of documents required in en average loan package will not go down and may increase, because going digital eliminates the motivation to reduce form, digital or otherwise.
Traditionally, notes, deeds, compliance forms and other things are constantly moving physically from one place to the next in the lender's office. Some lenders are extremely efficient but many are not.
Sooner or later - after much shuffling, sorting and transferring - all of that paperwork will wind up in a box, on a shelf, at a warehouse, perhaps never to he seen again!
If it is necessary to see it again, someone has to pull the box, locate the file, deliver it to the proper recipient, and then reverse the entire process. That approach no longer makes any sense.
Imaging will allow that physical file to be anywhere or everywhere simultaneously. And, of course, it can be browsed on the Internet.
The technology is here today. The next step is for the industry to catch up to the concept; to grasp that there is a much more efficient way of doing things.
Right now, we're putting out a software module that does basic imaging. For the time being, we decided to keep it to the basic functionalities to see if customers would use it.
Surprisingly, it has attracted less usage than we expected. I think in the grand scheme of things, people are simply resistant to change and want to wait and see what happens tomorrow.
But as the quote at the beginning of this piece indicates, waiting can have serious consequences. That has never been truer than in today's high tech world.