Chris Lewis is Director of Enterprise Solutions with DocMagic, Torrance, Calif.
Remote online notarization is the critical component to the industry’s realization of a truly 100% paperless, fully remote, no-touch mortgage closing. In the journey to deliver a digital lending experience, the offering and acceptance of RON completes a transformation that promises to provide benefits to lenders and the borrowers they serve.
In practicality, many large banks, particularly those that operate across several states or the entire country, have found that the goal of implementing RON closings at scale comes with some challenges that, at first glance, seem difficult to overcome. We have found that three of these challenges, in particular, are holding lenders back.
Here is why, despite the challenges that still exist in the pursuit of remote closings, lenders should push forward now with RON. Lenders will need to understand the three primary challenges and how to overcome them.
Getting a handle on process complexity
One of the main objectives large lending institutions are focused to achieve is consistent closing practices across the board. Quality control is often easier when fewer workflows are used to complete the loan origination process. Traditionally, the sheer size and scale of their operations have made it difficult to implement streamlined decision-making to drive different workflows in the loan origination process.
Modern technologies have changed all of that. Today’s loan origination and document management systems leverage business rules to send loans through a logical and automated flow, putting the right electronic documents in front of the right party at the right time.
On the QA/QC side, new regtech tools are making it easier for large lenders to check every loan for completeness and compliance. These tools have become essential elements of a fully digital loan origination process.
Lenders can create workflows to facilitate eClosings and reduce process complexity. Some of the changes may seem more significant than they really are.
Chris provides an example: many lenders send closed paper packages to a centralized processing facility where the documents are scanned and indexed into the lender’s imaging platform. Large lenders already have their systems set up to conduct this specific post-closing process. When a lender switches from paper to an electronic closing, much of the cycle needs to change.
A post-closing workflow for an eClosing is a clear improvement over a traditional closing — it’s faster and cheaper, no scanning is required, there’s less chance that documents will be lost, and they don’t have to be shipped.
Implementing eClosing requires a process change that will require significant precision, effort and project time. But lenders only have to make this change once, then their technology will take over from there.
Lenders that don’t make these alterations in their process run the risk of being left behind. Chris points to industry data that bears this out: ALTA’s 2021 Digital Closing Survey showed that eClosings rose 228% in 2020, and 64% of survey respondents expect RON closings, in particular, will have increased in 2021 after all the data has been analyzed.
Understanding the legal landscape
Another area of complexity that holds many lenders back unnecessarily involves the current patchwork of state and local regulations. As legislators work to implement new jurisdictional rules for their businesses, a national process is coming into focus. We’re not there yet, but it’s coming.
The Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act of 2020 was introduced at the start of the pandemic on March 18, 2020 to create a federal standard for RON. The bill applied only to “electronic records occurring in or affecting interstate commerce.” The bill was never voted on, but industry associations continued to push for uniformity at the national level.
On May 13, 2021, Sens. Mark R. Warner (D-VA) and Kevin Cramer (R-ND) introduced the SECURE Notarization Act of 2021. A comparable bill was introduced in the House on June 17, 2021, by Reps. Madeleine Dean (D-PA) and Kelly Armstrong (R-ND). The SECURE Notarization Act of 2021 would allow for nationwide use of RON and ensure that interstate transactions using remote notarization are recognized.
Chris says a federal RON law will be a game changer, providing the impetus that so many lenders have been waiting for, and likely inspiring numerous county recorders to begin updating their eRecording processes. In the meantime, lenders must be cognizant of the evolving legal landscape, without letting it hold them back.
48 states and the District of Columbia have either passed a RON law or issued an executive order pertaining to remotely notarizing documents, some have done both. New York became the 39th state to pass legislation allowing the use of RON. As lenders advance from hybrid eClosing to a RON eclosing, programming in the appropriate business rules is often the next step.
Similarly, with eRecording, there are still thousands of county jurisdictions that are still working on their own digital transformations. Each is managed independently by a county clerk who follows their own rules as to what kind of documents they’re willing to record. Not all of them will record an electronically notarized deed of trust or mortgage — even if they’re in a state that permits RON or in-person electronic notarization.
Lenders have been successfully navigating these challenges for some time, sending electronic documents to the Recorders that can accept them and paper to those that aren’t there yet.
- Creating a smooth integration with title partners
Finally, a successful digital lending process goes beyond the lender to the partners required to originate the loan. Chief among these could be the lender’s title partners, many of whom are used to implementing closings the traditional, paper-based way.
Before COVID, the drive for title companies to get to full electronic closings and remote closings was not near the level it is post COVID.
While more title agencies are making the shift to digital every day, it’s still not possible for the lender to get universal acceptance from every title partner to adopt a single platform, or even multiple platforms, to perform a RON closing.
Because settlement agents work with many lenders, they don’t have a monolithic mindset. Some are willing to close a loan electronically, while others prefer to continue receiving paper packages — and they may be in an area where they don’t face much competition, giving them little incentive to adapt to RON and eClosings.
While large lenders can certainly find title partners willing to work with them on eClosings, this challenge is similar to the County Recorder problem. There are some jurisdictions where fully electronic loan closings are still an opportunity for the future.
The solution is similar to that employed for eRecording: create workflows that adapt to the requirements of the situation, using business rules to effortlessly move the loan into the required automation path. We don’t expect this to be a necessary solution for long.
Chris points to statistics that clearly show which way the title industry is trending: RON use spiked 547% in 2020, according to an ALTA survey of vendors, as demand rose during the pandemic and more states allowed the process, both on a permanent and emergency basis.
Additionally, if and when the SECURE Act becomes law, title and settlement companies would be further incentivized to implement RON, with opportunities to expand their services into new states and regions — despite not having a physical presence there. For title and settlement companies, the upside of RON is clear.
The path forward is opening up. In spite of the challenges that remain, Chris maintains that lenders of any size can and should begin adopting RON now.
The answer is to use modern technology to implement business rules that allow the lender to easily close with paper, through a hybrid eClose, a full eClose or a full eClose with RON as the individual case allows. Using modern regtech and best-in-class document technology partners, lenders can expect a successful post-close process regardless of the method of loan closing.
Leading lenders will adjust their process so that hybrid eClosings or a fully digital RON eClosing become the default, with paper only used if the borrower opts out. That nuance will significantly drive adoption and deliver the promised digital transformation benefits to lenders and their borrowers sooner.