In our previous blog post, we explored eMortgage’s complex past and how the convergence of multiple technological and legal developments enabled eMortgage to arrive at its present state. But where exactly is eMortgage today?
To refresh, eMortgage refers to the electronic completion of the entire mortgage documentation and closing process, including document generation, delivery, signatures, notarization, authentication, closing and validation.
Many lenders have been handling certain aspects of the mortgage process—most notably, document delivery and signatures—electronically for years, and some have even achieved a full eMortgage. However, on the whole, the industry still has quite a ways to go before eMortgages truly become mainstream, particularly when it comes to closing.
Several factors have led to the increased adoption of eMortgage processes. Lenders have more advanced and powerful technology at their disposal and are becoming aware of the validity of electronic processes and their competitive advantages. The current regulatory and economic environment also bodes well for the widespread adoption of eMortgages – CFPB infrastructure has already been established, TRID implementation is complete and lenders have more resources to invest in eMortgage technology now that they’ve bounced back from 2008’s foreclosure crisis.
On the other hand, there are still a few obstacles impeding the widespread adoption of eMortgages, and some of them will be challenging to resolve. Before full electronic mortgages can be actualized on an industry-wide level, there must be a greater understanding of the reality of where eMortgage is today and the current barriers to its mainstream realization.
The eNotarization Challenge
As we noted in the first part of this series, electronic documents and eSignatures have now been legally recognized for almost two decades. While this is a crucial first step for the mainstream shift to entirely electronic mortgages, the legal validity of other aspects of the electronic mortgage process still needs to be established before eMortgages can be fully realized on a larger scale.
In particular, lenders need nationwide recognition of the legal validity and viability of eNotarization. eNotarization law is controlled at the state level, and thus far only about 20 states have said anything regarding their legal structure around electronic notarization, and of those, some have enacted laws that are so technology-specific that they effectively prevent eNotarization from taking place there because of practical limitations (like requiring the use of a specific digital signature vendor who subsequently decides to no longer operate in that state). Many of the other states have yet to clearly say whether they’ll recognize electronic notarization during mortgage transactions, creating uncertainty for lenders and investors.
While the lack of standardized eNotarization acceptance across all 50 states hampers mortgage originators who want to go “e”, it’s not a show-stopper. Forward-thinking lenders have adopted a hybrid eClosing approach, using paper docs just for the notarized documents, in states that don’t support eNotarization.
More education is necessary, especially to help state legislators, attorneys general and notary commissions to understand that special laws for eNotarization are not necessary in the first place, because ESIGN and UETA already provide the legal framework required. The best way to think of eNotarization is simply as a different type of “pen” that the notary public uses to sign the document, and to keep the legal framework technology-neutral, just as ESIGN and UETA are.
Today, eNotarization is not the only obstacle impeding the widespread adoption of eMortgages. In the next part of the series, we will continue to address the present state of eMortgages, focusing on the investor and education challenges.