By Tim Anderson
I don’t spend a lot of time watching prime time television, especially on the traditional (non-cable) television networks, but I know a lot of folks who do. While “reality television” has been the rage for the past decade or so, the historical triumvirate of 8:00 p.m. to 11:00 p.m. (7 p.m. to 10 p.m. Central) TV has long been made up of situation comedies, medical dramas and police shows. In the later category, the forensic scientist (CSI) has come to dominate the genre.
People love to follow the evidence trail back to the scene of the crime. It makes us feel smart to know that crime scenes leave clues and the bad guys will always get caught. Of course, those of us working in the real world know that only about 30% of all crimes get solved. The clues are never as easy to find as they appear on television. In our industry, at least, the government wants to change that.
The Consumer Financial Protection Bureau has made it very clear, in their rules for both the origination and servicing side of the business, that companies in the mortgage industry will be required to provide the regulator with electronic audit trails for everything that impacts the consumer in our processes. The industry is already moving to comply.
As they do, executives are realizing that creating electronic audit trails from stacks of paper documents is incredibly difficult. When paper gets lost, as we know it does, when it propagates errors or omissions, as we know it does, it creates gaps or discrepancies between these audit trails and what the firm can prove if they are called to go back through the paperwork.
Add this to the fact that many of the new CFPB requirements are tied to new disclosure time frames—where doing the deed isn’t enough to be compliant but the timing, tracking and recording of the disclosure are just as important—paper documents do not hold up here either. There is no guarantee that a date stamp on an envelope will be enough to convince our regulator or a judge for that matter that the disclosure was made to the consumer in time for them to factor it into their decision making process.
Mistakes here will be too costly to allow. The industry needs a better way. Fortunately, we have a better way that has been tested and proven to meet the needs of both the industry and its borrowers. It will also meet the needs of our regulators.
The e-mortgage, as envisioned by the industry leaders who see it as an end-to-end electronic process, answers all of these problems and provides us with an electronic record from application to pay off that will protect our industry in the future from noncompliance risks. But in order to be most effective, we must embrace the entire process.
I remember back in the early days of the e-mortgage, when vendors were working to get lenders and servicers to dip a toe in the pool, we were telling people to just start somewhere, anywhere, because we knew that the incremental advantages would be enough to get our clients to dive in. We no longer have the luxury of taking our time on this path. Current compliance regulation is driving us in this direction.
Because the federal government requires us to provide a trail of evidence for our actions, it behooves us to keep our operations in the same electronic form as the audit trails that we are asked to submit. We have the technology to do it. Our documents are already electronic. We have processes for presenting these documents to borrowers, making certain that they have seen them and then allowing them to e-sign them for free. Afterward, we have systems record the transaction with a date and time stamp of what was presented to whom and when. We also have the ability to e-notarize and e-record them into the public record and the ability to store all (instances of data and documents) in a single e-vault repository to meet the electronic retention requirements.
The industry needs to realize that the only way lenders and servicers can possibly protect themselves from future lawsuits, claims, buybacks or loan disputes is to take everything they do into the electronic realm. The sooner we do so, the sooner we’ll quit being the focus of so much prime time television coverage and return to an industry that our customers are willing to trust.