How many completely paperless mortgages did you close and deliver this year? For most lenders, the answer is still zero.
Despite the great gains made in creating the infrastructure and technological capabilities to support a fully electronic mortgage process, there is still one major gap in the paperless mortgage chain – the closing table.
Hitting the Closing Gap
The end goal of the fully paperless mortgage process has long been envisioned by lenders. Even without performing a formal ROI analysis, it’s obvious that printing, handling, storing, shipping and securing stacks of paper involves many tangible and intangible expenses.
Hard (tangible) costs hit the bottom line directly in the form of overhead expenses – paper, toner, file cabinets, folders, copy machines and more. A $1,000 savings in overhead expenses translates to $1,000 more in net profit. If a lender has a 10% profit margin on overall revenue, then achieving that same profit increase would require a $10,000 growth in revenue.
Intangible or soft costs are harder to quantify, but can also greatly impact the bottom line. How many employee hours are required each month for managing mountains of paper files, pushing carts of paper around the production floor, scanning, copying and finding lost loan files? How much money was spent during the foreclosure crisis finding lost paper notes or filing Lost Note Affidavits in court?
In the early 2000s, document imaging software, the Internet and computer hardware became powerful enough to use for production imaging operations in mortgage lending shops. Some early adopters reported large cost savings by scanning all that paper after closing. At the same time, loan origination software provided improved solutions for managing the loan application and origination process in a largely paperless way.
The net result of these converging technologies created a mortgage process that was mostly paperless from application through pre-closing, and also paperless from post-closing onward. But we still have a printed stack of paper closing documents for the borrowers to ink-sign.
Bridging the Closing Gap
This is the ultimate goal of the eMortgage framework: By enabling a fully electronic closing environment, we can enable lenders to maintain electronic documents through the entire loan production process. We’re not fully there yet – we need far greater mainstream investor acceptance of electronic notes, for example. But as more and more originators enact a full eClosing process, investors will feel more pressure to accept eNotes to remain competitive.
Also, some closing documents need to be notarized at the closing table, and some need to be recorded post-closing. Today, nearly 75% of the U.S. population resides in counties that are now eRecording-enabled. eNotarization, which is controlled at the state level, is much more of a patchwork at present – some states have enacted specific rules around eNotarization; some have said nothing; and some have said they don’t accept it.
eNotarization doesn’t change the fundamental mission of a notary public, it’s simply a different way of signing the document and is already covered by the legal framework of ESIGN and UETA. There’s no need for 50 different requirements for eNotarization and especially no need for a notary to use a PKI digital certificate!
Eventually, as eRecording and eNotarization both grow in adoption and support, we can finally reach the tipping point of mainstream eMortgage adoption, and “close the paper gap.”