PERSON OF THE WEEK: The COVID-19 pandemic has impacted many aspects of the real estate and mortgage industries. Fortunately, some of its effects have been positive. To learn more about the positive impact the coronavirus has had on our industry – particularly the accelerated adoption of e-closings – we spoke with Jennifer Cagle, vice president of loan producer product development for FICS (Financial Industry Computer Systems Inc.), a mortgage software company that provides flexible loan origination and mortgage servicing software.
Q: What positive impact has the pandemic had on the mortgage industry?
Cagle: We’ve certainly seen some beneficial impacts for the mortgage industry. Some of my colleagues have suggested that COVID advanced our industry 10 years, in terms of digital technology adoption.
This is especially true for digital lending. When COVID struck, lenders were forced to transact remotely, leading many to start taking advantage of digital tools that had been available to them for years. E-closings benefit borrowers, lenders, and investors.
Q: How do eClosing capabilities assist in disentangling the mortgage process?
Cagle: Many borrowers view the complicated mortgage process as a bit of a tangled mess. Digital lending has streamlined the process, improving borrowers’ and lenders’ experience.
E-closings allow borrowers to sign documents at a convenient time and location of their choosing. Borrowers can spend more time reviewing electronic documents before they sign them—instead of feeling rushed when they’re sitting around a table at a closing agent’s location. E-closings make it possible for a spouse who cannot be at the closing table to sign required closing documents without needing a power of attorney (POA). Eliminating the borrower’s need to show up at the title company’s office at a certain time for the closing ceremony has reduced homebuyers’ stress. Handling closings with remote notaries is quicker and easier than fighting traffic to meet at a specific building location. Plus, it saves gas and reduces air pollution.
Digital lending also benefits loan originators by streamlining vendor interactions, eliminating paper order placement and processing and, best of all, putting an end to stare-and-compare work by the lender’s employees. E-closings also streamline the post-close quality assurance and funding processes. In short, e-closings save time and money.
Digitizing the closing process provides vendors with accurate, validated information. For example, conducting asset verifications through a technology portal gives lenders correct, up-to-date information that comes with special assurances from the GSEs.
Q: Are e-closings an all or nothing process?
Cagle: No, electronic closings are not an all or nothing process. The hybrid closing was and still is one of the most popular kinds of electronic closing today.
Historically, hybrid closings meant that borrowers signed most of the loan documents electronically at the closing table but certain documents, including the Promissory Note, were wet signed. In the early days, lenders weren’t sure they could sell an e-note into the secondary market profitably. Those days are over. Now, the nation’s largest investors are ready and eager to buy e-notes, so we’re seeing hybrid e-closings where some documents—including the e-note—are signed electronically.
Q: Is there a security concern related to borrowers e-signing documents?
Cagle: Security concerns sometimes prevent lenders from adopting e-closings. Rest assured that investors are not interested in buying an e-note if there is not a layer of security in what they are taking on as a risk.
E-notes—the security instruments for large sums of money—are required to be SMART Docs. A Smart Doc is an electronic document created to conform to a specification standardized by MISMO. This format links data, the visual representation of the form, and signature. A Smart Doc can lock together data and presentation so it can be system-validated to guarantee the integrity of the document—ensuring that what the borrower sees and signs on the computer screen is the exact document that will be stored. It also ensures that the data displayed on the screen will be the exact data used for processing the loan.
Q: What’s involved in starting the e-closing process?
Cagle: Many lenders think about e-closings and digital mortgages in a general sense and do not implement these practices because they feel overwhelmed by what they need to do to get there. If we drill down into specific step-by-step procedures, it’s much easier to understand the process and move forward.
Lenders should start by using e-notes to increase efficiency and benefit everyone involved. Implementing e-notes is simple when you partner with the right mortgage software and document service vendors. You need a Mortgage Electronic Registration System (MERS) relationship, an investor that accepts e-notes (Fannie Mae and Freddie Mac are leading the way), and a mortgage software partner that helps you get the eNote to that investor approved e-vault. If you haven’t already done so, establish relationships with the partners you need to originate and sell eNotes: MERS and a document service vendor who offers electronic documents and an e-vault.
In many cases, the lender’s loan origination software vendor already has these relationships built into the LOS. So, the very first step for most lenders is to sit down with their technology partner and have that conversation.
Q: What tools or software do servicers need to work with e-closed loans?
Cagle: If lenders work with the right loan origination software vendor—a company that truly understands what it means to be a technology partner—they will have what they need to adopt e-closings. This also applies to servicers, who can benefit from e-closings by receiving digital packages, making it easier to process onboarding in many situations. eNotes increase efficiency and therefore profitability for servicers as well as originators.
Implementing e-closings is less about the specific software the lender employs and much more about the adoption of new loan origination processes that support electronic closings. The lender’s mortgage software partner can guide and support them as they adopt electronic closings.
So essentially the pandemic accelerated tech adoption to the point it likely would have been without the crash of just over a decade ago. That even caused our industry’s adoption of tech to slow to a grinding halt. It’s great to see the advances – I’m a huge supporter of them. But net net, we’re basically where we would have organically been absent the crash.