PERSON OF THE WEEK: The pandemic has accelerated mortgage lenders’ adoption of digital e-closing solutions. In addition to the need to conduct business with borrowers fully remotely, lenders have also become more reliant on e-closing technology to handle the recent massive increase in origination volume resulting from record-low rates.
But as lenders build-out their digital closing processes, they need to take into account the settlement services piece of the equation. Furthermore, they need to include e-notes in their roadmap – and have a plan for transitioning to e-notes at some point in the future.
To learn more about these and other key considerations when building-out digital e-closing processes, MortgageOrb recently interviewed Fred Gooch, operations counsel and senior vice president of compliance for First American Docutech.
Q: Why is it critical for the mortgage industry to adopt digital lending processes now and in the future?
Gooch: Prior to the pandemic, the industry was already moving in the direction of e-closings. However, the effects of the pandemic, combined with generational attitude shifts towards technology, changed that outlook. Lenders and settlement companies had to accelerate their digital conversion timelines so they could maintain market share and meet borrower expectations.
Lenders are leveraging data to customize the experience for each borrower and offer personalized product and pricing options in a transparent way. Presenting more information to borrowers helps them feel in control of their mortgage experience. They want to apply for loans on their own schedule, and they are willing to receive, view and sign documents online.
The combination of COVID-19 and record low interest rates have stressed lenders’ capacity. The best way to accelerate the speed of lending from application to closing is to automate as much of the process as possible to maximize production.
In addition to maximizing capacity and production, digital lending processes also improve the quality of the loan file and decrease the costs associated with correcting costly errors. The automation of the creation and execution of the loan documents electronically allows lenders to implement workflow processes that ensure the documents are generated and executed correctly. This can dramatically reduce the costs of correcting document errors post-closing.
Q: In light of COVID-19 accelerating the adoption of e-closing solutions, what is the next step in the evolution of the e-mortgage?
Gooch: The next step is filling the gap between online loan applications and the closing table by accelerating the digitization of all phases of the mortgage workflow. Most innovation to date has focused on the front end. The mortgage industry is now working to address the gaps in closing, settlement, post-closing, and secondary.
For example, one of the more complex steps in accelerating digital closings is planning for how digital mortgage initiatives impact the settlement agent. Even though momentum for e-closing adoption is on the rise, many settlement agents have limited experience performing an e-closing with a borrower.
Lenders must have a clearly defined strategy for supporting not only settlement agents, but also underwriting, post-closing and secondary with integrated digital lending tools.
Q: How can lenders implement e-closing? Does it require an all-or-nothing approach?
Gooch: The transition to e-closing does not have to happen all at once, but lenders do need to make eNote technology, process and investor clearance a top priority. Those who have not started now will quickly find themselves behind the curve.
Most lenders begin with a hybrid approach, and that is the perfect way to start. A hybrid e-close process helps lenders improve loan quality, data accuracy and compliance, while also accelerating the overall loan process. Not only does this promote greater efficiency from an operational standpoint by eliminating reliance on outdated processes, but it also provides significant cost savings and an improved borrower experience.
Even a seemingly small step in the digital direction can have a significant impact.
Q: What does a more digital settlement workflow look like?
Gooch: A digital settlement workflow begins with the borrower accessing and signing many of the loan documents prior to the closing. Early access to the documents allows the borrower to take their time to carefully review the closing documents before the closing ceremony and avoid feeling rushed. They can also sign many of the documents beforehand, so the closing ceremony can be reserved for the signing of a few critical documents, including those requiring notarization. When the borrower only has to sign a few documents at closing, the time spent at a closing ceremony is dramatically reduced, making borrowers, settlement agents, and lenders happier with the closing.
Digital settlement processes can be accelerated through the wider adoption of Remote Online Notarization (RON). A RON involves a fully digital process where electronic documents are e-signed and e-notarized once identity is verified with the notary in a remote location via webcam. Several state governors signed executive orders permitting forms of RON and there will be continued efforts to accelerate RON on a nationwide basis.
RON is gaining popularity because it reduces document errors during a loan document signing. A mistake or missed signature on paper loan documents can sometimes go unnoticed until after a signing. With remote online notarization, if required information is accidentally left blank or incorrectly entered, the system will not allow the notarization to be completed until the errors are corrected.
Lenders can also increase efficiency by deploying an e-closing system that is easy for agents to understand and use. The number one complaint settlement agents have is that there are too many systems to learn and too many logins to remember. Streamlining engagement also means defining the physical and digital workflows for the agent. The e-closing technology should guide the agent through next steps, while highlighting the new, digital workflows and efficiencies.
Communication is another major factor to successfully integrating e-closing between lenders and settlement agents. Lenders and settlement agents need to ensure they communicate clearly on how the e-close process will work, and how they will notify each party that the loan is ready for an action. For example, lenders will need to notify an agent that an e-close-eligible loan is in the pipeline and when the borrower has signed disclosure or other documents. From there, notarization arrangements can be set up or other settlement needs finalized in a digital environment.
Q: What is still needed to accelerate post-closing digitization?
Gooch: The three primary areas needed to digitize post-closing digitization are e-recording, e-vault and LOS pushback. In a fully digital mortgage transaction, the security instrument is executed, notarized and recorded electronically. There is no need to print, scan, mail or manage other physical document logistics. This connectivity accelerates the speed the document can move and establishes a high degree of transparency.
E-vaults serve to reduce cycle times and optimize process efficiency through improved document management, security, and the ability to transfer, store and control electronic promissory notes and related loan documents. E-vaults also allow documents to be shared both internally and externally with warehouse lenders and document custodians.
With the increased use of e-vaults, there is a greater need to keep the LOS in sync with the e-vault. Innovative mortgage software is making it easier to accomplish this two-way LOS data exchange. There are three primary types of data that must move between the LOS and the document management software system during the normal loan origination process: the loan data used to create the documents, the loan documents themselves, and events – viewing and signing – that occur with those documents.