The E-Mortgage Blame Game: Lenders Vs. County Recorders

During a session on e-mortgages at the recent Mortgage Bankers Association's (MBA) National Secondary Market Conference in New York, an audience member identified herself as a Florida mortgage banker with an e-mortgage problem. The problem was not about the technology itself, but rather it was about who was using it. Or in the banker's case, who wasn't.

While the banker's institution was enabled to work with e-mortgages, the local country government did not have an electronic recording system (also known as e-recording) in place and would not accept electronic documents submitted for recording in its lands record office.

Thus, the e-mortgage process hopped off the digital tracks from a paperless transaction within the financial institution to a paper-heavy procedure when the county government entered the picture.

For Harry A. Gardner, senior director for industry technology at the MBA and vice president of e-mortgages at MISMO, getting a wider level of acceptance for e-mortgages is still a major challenge.
Impac "In order to gain a full e-mortgage landscape and greater liquidity, we need more investors integrated, more servicers, e-custodians – more pieces of the puzzle need to be out there," he says. "And the more folks who are integrated to become e-enabled, the more this whole process can reach that tipping point of the hockey stick curve and more forward much more people."
Getting local government offices involved in e-mortgage processing has been a priority for Gardner and MISMO. He points to an e-recording portal established by New Jersey's state government as a clever example of integrating the various entities in the process.
"The state has a single portal that you as a lender or investor have to integrate with, and then they integrate to all of their individual counties so you don't need to have integration with 99 different counties," he says. "New Jersey is offering its portal for free to other states."
Gardner notes that of the approximately 3,600 counties and recording jurisdictions across the United States, there was "something of an 80-20 rule where the vast majority (of counties) do very small volumes of recording because they're relatively light population areas, as opposed to the major metropolitan areas." He estimates at about 300 counties "would account for 80 to 90 percent of the actual recording volume."

However, Mark Monacelli, president of the Property Records Industry Association (PRIA), puts the number of e-recording-enabled counties at 250, adding that the adaptation of this service has been growing with much greater speed than some may realize.
"In February 2006, there were only 76 counties hooked up, compared to 250 today," he says.

For Monacelli, the problem is not with county recorders. From his own research, he determines that county recorders are more than happy to participate in e-recording.
"With county recorders, the biggest complaint I get is that they don't get enough electronic transactions," says Monacelli. "They have to go out and hustle people to send them electronic transactions."

The problem, Monacelli continues, is with the lenders. He points to a recent survey conducted by the MBA on the state of e-mortgage acceptance that suggests lenders have been lethargic in putting e-mortgages into place.

"The MBA has information that indicates the lenders have not changed their business model," he says. "To do so is extremely expensive and time-consuming, and lenders don't want to a hybrid system that's half-paper and half-electronic."
Monacelli adds the MBA survey has yet to be made available to anyone in the industry. "They will not disclose it to us," he says. "What can I say? The MBA is the MBA."
The lack of lender enthusiasm and participation was confirmed earlier this year when Fannie Mae issued a report on the state of industry adoption of e-mortgages. In polling 169 lenders, Fannie Mae found issues ranging from perceived consumer wariness (79% of lenders felt borrowers were concerned about security and privacy issues) to the lack of readiness by the lenders' business partners (65% of those polled were working with investors, closing agents and correspondent lenders who were not using e-mortgages).
However, the Fannie Mae survey found lenders blaming county recorders, too. Of the lenders surveyed, 45% of the respondents felt there was no value in "electronically signed mortgage documents without the ability to electronically record with the county" while 31% thought a half-paper, half-electronic hybrid solution "adds extra work and cancels out the value derived from an electronic process."
"Industry analysts agree that e-mortgage adoption is slower than the adoption of other new technologies or processes, such as automated underwriting and ATM usage," the report states. "The slower rate of adoption can be attributed to the greater number of participants, all of whom need to agree on the technology and business process standards that are required."
IndyMac Bank The implementation of industry standards has been a priority for MISMO, which apparently has more success at a federal level than at of a local one. In April, MISMO announced it would publish e-mortgage standards for government loans involving the Federal Housing Administration (FHA), the Veterans Administration (VA) and the U.S. Department of Agriculture's (USDA) Rural Development program. The three leading housing-related government-sponsored enterprises (Fannie Mae, Freddie Mac, Ginnie Mae) have been long-standing e-mortgage proponents.
For Monacelli, the need for e-mortgages to move further depends on a push by lenders, not county recorders.
"If lenders will take a more proactive position, educate themselves on what truly is going on in the industry, partner and work with PRIA and county recorders at the local level, in addition to convincing their state legislatures to change existing laws to allow for electronic recorded transactions, we could make some serious changes and enhance marketplace adoption," he says.


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