Back in 2015 when lenders and settlement agents were gearing up for TRID, many mortgage and title professionals decided to leverage the new regulations as an opportunity to make technological and process improvements. This was the beginning of a larger movement toward a paperless process that introduced more electronic signatures and electronic recordings.
Since that time, the move to a complete eClosing experience has been slow but steady until the novel coronavirus reached the United States and accelerated interests in remote notarization.
If lenders want to continue to attract borrowers, they’ll have to compete with those who offer the convenience of an end-to-end digital closing experience. Even the smallest bank can no longer rely on paper alone, but the good news is that those who make these upgrades to eMortgages will reap the benefits of offering a better customer experience.
The Benefits of eMortgages
Both borrowers and lenders benefit from a greater adoption of technology in the real estate transaction. Some of the benefits of an eClosing experience include:
- A better customer experience
- Borrowers can review their loan estimate and closing disclosures more easily
- Provide a convenient signing and notarization process
- Reduced TRID Errors
- Shortened Life Cycle of the loan from closing to delivery to the secondary market
- Faster funding
- Fewer missed signatures, documents, and files
- Recording of the notarial act that can be used as supporting evidence in foreclosures
Reducing the paper shuffle and the requirement to fit a trip down to the title company’s office for a signing is a major plus for both mortgagor and mortgagee. Technology won’t take the personal touch out of real estate closings any time soon, but now more than ever, consumers want options to close in a way that’s convenient and safe. Agents will simply be using more video conferencing tools to accommodate questions and provide the same level of in-person expertise.
Fully digital closings are moving from a nice-to-have to a must-have for professionals involved in a real estate transaction. For traditional mortgage originators, the rise of independent mortgage companies is like the writing on the wall: focus on technology and innovation or continue to lose out on mortgage originations.
Traditional lender slips from the top spot
When the CFPB released its Home Mortgage Disclosure Act data in June, the bureau noted that independent mortgage companies originated 56.4% of home purchase loans and 58.1% of refinance loans in 2019 and 2018 respectively.
For the longest time, Wells Fargo has held the top spot for mortgage originations, but recent HMDA data reveals a new trend: independent mortgage banks are slowly growing their share of the pie. Wells Fargo not only lost the title of top mortgage originator to Quicken Loans, but United Wholesale Mortgage came in second place!
JPMorgan Chase held the number four spot and three more nonbank lenders, Fairway, loanDepot, and Caliber Home Loans took the next slots followed by Bank of America at number 8. In 2016, JPMorgan Chase, Bank of America, and Wells Fargo were all sitting pretty in the top five.
The independent banks haven’t shied away from remote notarization and eNotes either. Quicken Loans partnered with Nexsys Technologies to perform the first remote online mortgage closing in Michigan, North Carolina, and is the first mortgage lender to offer eClosings in all fifty states. Amrock, Quicken Loan’s sister settlement services company, has successfully completed 85% of all eNotes in the United States in 2020.
These independent banks are taking over not only because of their willingness to invest in more technology but also because they are willing to lend to applicants that are turned down by the traditional lenders. In 2018, these banks made up 60% of all home purchase loans to low and moderate-income borrowers and financed 64% of loans for minority borrowers.
Quicken Loans revolutionized the mortgage application experience with the mobile-friendly Rocket Mortgage app, filling a space long ignored by traditional lenders and meeting the customer where they are. It also doesn’t hurt that these companies, like Better and Thrive, have an easy-to-navigate, visually appealing, and informative website that attract the millennial homebuyer. Like Blockbuster and Netflix, the mortgage industry is on the precipice of a reckoning between tradition and innovation.
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Legal precedent for paperless mortgages
In one court case out of Palm Beach County, affirmed that electronic signatures and electronic promissory notes are enforceable at foreclosure proceedings. Despite the borrower’s argument that the bank did not prove it was authorized to pursue foreclosure on behalf of Fannie Mae who owned the eNote, the non-jury trial ruled in favor of the bank.
The precursor technology and the eCommerce Laws like the ESIGN Act and UETA that’s culminated in an end-to-end digital closing with remote notarization have been around for over twenty years, but unlike eSignatures and eRecording, there hasn’t been explicitly approval of eNotarization and remote online notarization in all fifty states.
A common misconception is that state law determines if remote online notarization closings are legal or not in that state when it’s actually that state’s notaries that are restricted from implementing RON. Some title professionals have been using remote online notarization in counties that accept eRecording of documents executed by notaries in states where RON is permissible.
Promissory notes, of course, don’t require notarization, so executing one with an electronic signature is allowed in all fifty states and as demonstrated by the case in Palm Beach County enforceable during a foreclosure filing.
While legal certainty has been established for more than two decades, there still remains lingering doubts among mortgage originators about the liquidity of eMortgages on the secondary market. Interest in eNotes only started to gain traction several years ago as the mortgage industry was recovering from the financial crisis and working toward meeting TRID regulations.
Today, social distancing orders stemming from the COVID-19 pandemic as well as incentives by the government-sponsored enterprises (Fannie Mae and Freddie Mac) for sellers and servicers to work with MERSCORP and eVault providers has further accelerated the acceptance and purchase of eNotes. The onboarding program has been streamlined so that companies that are prepared can become active on the MERS eRegistry in just two weeks.
The growing adoption of eNotes is reflected in the record-breaking numbers registered with the MERS eRegistry system each month. In June 2020, a record 36,744 eNotes were registered. Compare that to the 19,000 eNotes registered in the first quarter of 2019 and the 17,000 in all of 2018.
The GSEs have established the market for eMortgages, but widespread purchasing of eNotes hasn’t quite reached the scale most lenders would hope. Outside of the GSEs, Ginnie Mae has been working on building a Digital Collateral program for its securities and about 30 private investors and warehouse lenders are ready to fund and purchase eNotes. This is a marked improvement from even a few years ago, but continued adoption by commercial warehouse lenders, the Federal Home Loan Banks, and private capital markets funders is imperative.
The future of real estate transactions
There is still a lot of work to be done on the digital closing front. For instance, there are still a lot of moving pieces that aren’t connected yet, but the groundwork is being laid today. For those of you in the title and real estate industry who plan to make this your career for the next ten to twenty years, now is the time to join the conversation on RON and eNotes. Consider how adopting new software and processes to support a digital closing might fit into your company’s growth strategy and how you can be a part of steering the future of real estate transactions.