Has The Electronic Frontier Finally Arrived?

BLOG VIEW: For years, experts in the mortgage industry predicted that electronic documents and e-mortgages were poised to be the next big trend in lending automation. And while great progress has been made in the capabilities of e-docs, the adoption of new data standards and the acceptance of digital archiving, the number of lenders truly embracing the path to a paperless mortgage have remained few.

However, two trends may be pushing e-docs and e-closings to the tipping point for mass adoption. Even with these trends, some may wonder if replacing conventional paper documents is really worth the effort. The truth is that implementing an up-to-speed model can provide significant competitive advantages in an ever more competitive industry.

Consumer Acceptance Of Online Channels

The first trend that should speed up electronic mortgage adoption is the growing demand for financial services via online and digital channels. As the mortgage industry evolves, we must look at the way lenders are preparing to take steps in order to remain relevant to borrowers. Customers demand convenience and tech-savvy options, whether it's in their mobile banking application or being able to conduct their mortgage loan application process from the comfort of their living room.

For example, in the banking world, the Federal Reserve reports that now half of all smartphone users utilize an online mobile banking application. Similarly, in the mortgage industry, nearly every lender now offers initial applications through online channels, and according to a report from Lieberman Research Group, banks anticipated online application volume to grow faster than any other source.

A New Day In Mortgage Reform

The second piece driving the adoption of e-disclosures and e-closings is the pressure from regulatory reform. Driving the adoption of e-disclosures will be the new combined disclosure document required at the beginning of next year. For more than two years, the Consumer Financial Protection Bureau has been planning to launch a standardized form that regulators are scheduling to replace the existing Good Faith Estimate and Truth in Lending Act disclosure.

This document, known as ‘The Loan Estimate,’ was crafted to further educate borrowers and help them understand the terms and commitments associated with their mortgage loan. While the intention is to simplify the documents and make them easier for the borrower to understand, the result is that lenders will need to adopt e-disclosures in order to save costs, speed up fulfillment and utilize the added tracking capabilities inherent in electronic documents to enhance compliance.

The ability-to-repay/qualified mortgage (ATR/QM) requirements implemented earlier in 2014 will also be a driving force behind the increasing adoption of e-closings. Many experts feel that ATR/QM will commoditize the traditional 30-year mortgage. With fewer lenders willing to take on the risk of loans that fall outside the standards, lenders will have to find ways to eliminate as much cost from the workflow as possible.

The technology to facilitate the e-closing has existed for years, but the need to differentiate based on new services and cut the costs related to paper to maintain a margin in a lower-volume, commoditized environment should finally push adoption rates up.

Progressing From E-Disclosures To E-Closings

Most lenders will adopt a true e-mortgage in stages, implementing those areas that provide the biggest benefits first. With the Aug. 1, 2015, deadline for the new combined disclosures looming, now is the time to ramp up adoption of e-disclosures. The benefits are significant: enhanced document integrity, reduced time spent processing documents and stronger document security.

A good document system will have a reporting feature that enables lenders to track every stage of the mortgage process to guarantee each and every step is completed on time and in accordance with all regulations. The reporting function could also be tied to a mailing service that would send paper copies of the documents to borrowers automatically when the electronic communication is not completed in time.

As more consumers and regulators embrace digital services, lenders must make the transition towards e-closings and e-disclosures now. Or be left behind when the electronic frontier passes them by.

Scott K. Stucky is chief strategy officer of Idaho Falls, Idaho-based DocuTech Corp., a provider compliance services and documentation technology for the mortgage banking industry. He can be reached at scotts@docutechcorp.com.

(Do you have an opinion to share with MortgageOrb? Get in touch! Send an email to pbarnard@zackin.com.)


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