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Tue, 09/30/2014

For many people today, the homebuying process is a decidedly digital one. From finding homes to viewing them to researching prospective Realtors and mortgage originators, some buyers’ best friend is the phone in their pocket or the computer on their desk. According to a joint study from Google and the National Association of Realtors, nine in 10 homebuyers today turn to the Internet as a primary research source, and more than half of them turn to the Internet as their very first step.

With today’s homebuyers thoroughly keyed into the digital age, doesn’t it make sense for the mortgage process to be just as electronic as the shopping and research processes? The Consumer Financial Protection Bureau (CFPB) seems to think so, at least when it comes to closing procedures. This past April, the bureau released a report on mortgage closings, which in part outlined the CFPB’s intent to explore electronic-mortgage processes that might benefit consumers.

“Specifically, we hypothesize that technology-enabled electronic closing (eClosing) solutions have the potential to reduce errors, limit surprises, lessen anxiety, and create more time and opportunity for consumers to understand their mortgage and make more informed decisions,” CFPB Director Richard Cordray wrote in the report.

Although electronic mortgages have been on the industry’s horizon for some time, many banks and brokerages have yet to fully embrace the paperless process. Where do e-mortgages stand today, and what factors should origination companies bear in mind if they’re finding themselves behind the digital curve?

The state of e-mortgages

Electronic mortgage processes have certainly gained popularity in recent years, but the industry’s adoption of paperless origination is far from absolute. According to Xerox’s most recent “Path to Paperless” survey, 63 percent of industry participants had implemented paperless origination and underwriting as of 2013, and 57 percent offered electronic delivery of disclosures and other documents. Xerox found that just 10 percent of respondents offered e-signatures at the closing table in 2013.

Considering the enthusiasm some originators have for e-mortgages and electronic closings, these findings seem striking, if not downright baffling.

“[E-mortgages] are an absolute requirement to be able to deliver the service levels required as well as meet many of the new regulation requirements,” says Joshua Erskine, CEO of OneTrust Home Loans, an organization that adopted e-mortgage processes about five years ago. “I wouldn’t want to be doing it any other way, that’s for sure."

Other industry professionals echo similar sentiments, especially when it comes to remaining compliant. According to Tim Anderson, DocMagic Inc.’s director of eServices, the industry’s embracing of eClosing is inevitably linked to compliance, and in that sense wider industry adoption of eClosing is perhaps unavoidable. Anderson cites the “Know Before You Owe” rule, which in August 2015 will integrate the Truth in Lending Act and Real Estate Settlement Procedures Act disclosures. Part of this rule will require originators to deliver the Closing Disclosure three business days before a loan’s closing, a requirement that will be much easier to satisfy with the aid of electronic processes. “I don’t know how you’re going to be compliant without them,” Anderson says.

New technology

Change can be difficult to embrace, and that is often true for mortgage banks and brokerages. If your organization has yet to rollout e-mortgage processes in full or in part, what factors you should bear in mind when planning future implementations?

Although information security is always a concern when it comes to electronic processes, Erskine explains that third-party vendors’ intense focus on this subject has led to electronic systems and applications that are generally highly secure. To Erskine’s mind, the most noteworthy difficulty in implementing an e-mortgage system is retaining the ability to conduct business non-electronically.

“You can’t completely segregate the sector of the market that doesn’t work well online or doesn’t have access to computers,” Erskine says. “You’ve got to have the ability to efficiently run a process that has a borrower walking into your office and handing you things, as well as having a borrower that quite honestly doesn’t want to come anywhere near your office.”

While noting that organizations should emphasize thorough training, Erskine also adds that a speedy rollout is vital for any e-mortgage initiative.

“Unfortunately, I just don’t think the market will wait anymore for you to do a rollout of a six- or a 12-month time frame,” he says. “You’ve got to do it quickly. You’ve got to do it efficiently. You’ve got to do it strategically.”

Regardless of your system’s specific capabilities and rollout period, banks and brokerages should never lose sight of the CFPB’s expectation for “an empowered, knowledgeable homebuyer experiencing a more efficient, consumer-friendly closing process.” That vision, Anderson says, is central to the necessity of e-mortgage processes in general.

“It’s really about making the consumer experience better,” Anderson says. “[Today’s homebuyers are] an on-demand crowd that gets instant gratification when they do a search on Google. That’s the same experience that they want to have with any financial transaction or anything they do on the Web. Keep the consumer involved from application all the way through closing.” 

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Raymond Fleischmann was editor of Scotsman Guide's Residential Edition. For questions about this article, call (800) 297-6061 or e-mail articles@scotsmanguide.com.

As featured by Scotsman Guide, October 2014