As the industry continues to push more aggressively toward a digital mortgage, electronic closing becomes more critical. After all, this is where the borrower gets the most benefit out of the paperless process and when done correctly it improves borrower satisfaction, which can increase repeat and referral business.
As you might expect, many lenders have questions about the process. When these questions arise, we often call on Harry Gardner, Docutech’s Executive Vice President of eStrategies, for answers.
In this post, we offer you answers to three interesting questions that come up periodically regarding the eClosing process.
What is the difference between a hybrid eClose and a full eClose?
The difference between a fully electronic mortgage loan closing and a hybrid eClose has to do with the number and type of documents the borrower signs electronically. In short, a hybrid eClosing simply means that some of the documents in the closing package must still be on paper and ink-signed, even though some of the package can be eSigned.
Gardner points out that you can think of the closing package as having four discrete components:
- First, there is the note.
- Second, the documents that must be notarized, which makes up the rest of the collateral package.
- Then, there are the lender’s ancillary documents, which can almost always be eSigned.
- And finally, there are the docs that come in from title and settlement.
In most hybrid eClosings, the borrower can eSign a number of documents in advance in the comfort of their own home, primarily the upfront disclosures and other ancillary documents. Then the actual loan collateral docs are wet-signed and notarized at the closing table with the notary. This closing ceremony looks similar to a traditional paper closing, except that since the ancillary docs have already been eSigned, there’s only a small number of paper docs remaining for the borrower to ink-sign.
In many hybrid eClosings, the note is also signed electronically – this is determined by the end investor and whether they accept eNotes yet.
Many lenders still want all the closing documents to be signed on the same date, depending on their investor requirements. Most eClosing platforms provide options to allow the borrower to preview the documents prior to the closing day, and some can then automatically enable the ancillary docs for eSigning on the day of closing, at the borrower’s convenience.
In a hybrid eClose, one or more of those components is being signed on paper.
Can you just print out an electronic closing package?
Not every title & settlement company is ready to host an electronic mortgage loan closing ceremony. In purchase money transactions, lenders may not be in a position to choose the title company they work with. In those cases, the documents are generally printed and signed with traditional wet signatures.
Most documents can be printed and wet signed, even if they have been tagged for eSignatures by the document provider, however there is one important caveat.
An eNote that has been prepared for electronic signatures includes an additional section that is not present in a paper Note. That section contains legal references to the MERS eRegistry as the identifier of the Controller (the electronic version of the Holder in Due Course) and the Location (the Custodian). Because of this, you can’t simply print out the eNote for a paper closing – the closing package should be regenerated by the document provider specifically as a paper closing.
Why are lenders so interested in eClosings?
There are many benefits for the lender, the title company and the borrower.
- One of the most significant benefits is that if a lender can deliver a loan to the investor electronically, that loan can be certified and funded within 24 hours of closing. It doesn’t always happen that quickly, but most lenders find a significantly faster process. Most lenders see their loans funded by investors in 3 to 5 days but compare that to the up to 15-day timelines with the traditional process and the benefit is obvious.
- By turning their loans in a shorter time period, the lender remains more liquid and saves money. They save money on warehouse lending because they are using the funds for shorter periods and can reduce the size of their overall lines by turning the lines more frequently.
- Then, there are operational benefits for the lender, with savings in time, costs and resources with eClosing. The high cost of post-closing QC and the old “stare and compare” process can be greatly reduced with eClosing packages. Because the eClose platform knows which documents are required and where they must be signed, there are no missing signatures, or improperly-signed names. Using eClosing ROI calculators, lenders are seeing the potential for $180 - $250/loan in cost savings.
- Another benefit for lenders is the tighter linkage between data and documents, which makes post-closing and quality control processes simpler and less expensive. Investors can more quickly certify the Notes instead of relying on a custodial review. With a tight integration between the eClose platform and Simplifile, a system many title companies use, the eRecording process is also streamlined. This allows the technology platform to push back post-closing data like the disbursement date, final transfer taxes and fees and the final eRecorded documents to the lender, reducing the need for post-closing staff to spend time on the phone chasing that information.
- Finally, there is a really strong consumer benefit. While most lenders start with the ROI that comes from the warehouse and closing departments, many are getting excited about the positive impact eClose is having on customer satisfaction. When you can allow the borrower to preview their closing docs before the day of closing, and reduce the closing ceremony from hours to minutes, you improve the borrower experience dramatically. Closing Agents are also happy with the streamlined closing ceremony – even for hybrid eClosings, the ink-signing of just a few remaining documents can be completed in 10 minutes, rather than an hour or more.
To see exactly how much you could save by closing electronically, request a demo of our eClose ROI calculator for your customized cost savings and ROI request.