The e-mortgage: A true business advantage in today’s mortgage environmentTom Madisone-mortgage, credit crunch, paperless, Mortgage Industry Standards Maintenance Organization, Extensible Markup Language
Without a doubt, the credit crunch and recent events in the
mortgage industry have put many of us to the test. For today's
mortgage lenders, navigating through this crisis means looking for
new and improved ways to deliver greater value. This is where
strategic technologies like the e-mortgage can play a valuable
role.
We have all heard the e-mortgage buzz, and for the past few
years, e-mortgage has been a popular topic among business and
lending circles. While lenders have understood the benefits that
e-mortgages can bring to the lending process, it was not until
recently that lenders became serious about the technology. Todays
e-mortgage processes are designed to streamline operations, enhance
data management and, ultimately, improve interactions with the
secondary/investment market.
What e-mortgage really means
While lenders of all sizes and types are talking about the value of
the e-mortgage, the term has come to have several market meanings.
Some lenders interpret e-mortgage as a paper-based environment in
which loan documents are first signed manually and later scanned
and stored electronically. Others view the e-mortgage as a
completely paperless transaction, in which critical loan documents
(including the necessary disclosures, documents used at a closing,
riders, contracts, agreements and, specifically, the promissory
note) have been natively electronically generated and signed. While
both scenarios are moving us in the direction of a more
"electronic" mortgage lending process, going completely paperless
has some distinct advantages over a "mixed" manual/electronic
process.
Truly paperless e-mortgages facilitate the greatest operational
efficiencies. Sending documents electronically from point-to-point
can significantly reduce loan cycle times, resulting in noticeably
lower origination costs. Additional savings can be realized from
the elimination of traditional postage costs and back-office
inefficiencies associated with manually processing loans. Paperless
e-mortgages also can mean higher quality loan documents and data,
since electronic processing reduces the chance of data loss. This
is particularly beneficial given the high percentage of
non-compliant loans currently held within real estate investment
funds. Had this technology been implemented earlier, the number of
non-compliant loans might have been better managed with readily
accessible data.
Paperless processing: Lending a competitive
advantage
In the simplest terms, paperless e-mortgages are only as strong as
the technologies behind them. Lenders can lower data integration
costs by utilizing the Mortgage Industry Standards Maintenance
Organization's (MISMO) Internet-based Extensible Markup Language
(XML) for real estate finance specifications and electronic
mortgage guidelines. With this standard, lenders can exchange the
Securable, Manageable, Archivable, Retrievable and Transferable
(SMART) document, an electronic document that binds together the
data, page view and signatures into a single electronic file. SMART
documents eliminate the need for a separate or proprietary
interface to a title agent, appraisal company or the closing and
document preparation company. With easy access to discreet data
elements, lenders reduce risk from a quality control and regulatory
check scenario by automating these environments.
In addition to supporting the right technologies, e-mortgages
must also improve the quality of loan delivery to the secondary
market, which is increasingly moving toward purchasing electronic
promissory notes. With electronic notes, the risk of human error is
significantly reduced, as mistakes are caught during the loan
delivery process. As more and more of these notes continue to be
accepted, the delivery to the secondary market will be much faster
and, more importantly, potential for buy-back will be diminished
due to higher quality and better loan data.
Most importantly, the right electronic mortgage brings greater
value to the marketplace than its corresponding paper asset, which
is exposed to more problematic inaccuracies. For this reason, a
$200,000 electronic-based promissory note should actually be worth
more than a $200,000 paper-based promissory note in the secondary
market.
The need for settlement services
providers
Once lenders have decided to go electronic, they must determine how
to capture associated efficiencies without incurring costly
technology development fees and exposing themselves to captive and
operational risk. This is where settlement services providers come
in. Settlement services providers offer convenient access to
products, services and processes necessary to close a mortgage loan
transaction through relationships with vendor management partners.
The relationship that exists between the lender and the settlement
services provider brings industry expertise and adds efficiency and
value to the closing process. This specific expertise enables
lenders to facilitate an e-mortgage without being exposed from a
captive or operational risk perspective. Vendor management
companies serve as the "vanguard" of e-mortgage technology, so that
lenders do not have to develop and manage back-office systems that
dont serve their primary purpose.
Settlement services providers also offer a centralized resource
for the entire lending process. Typically, lenders working with a
vendor management company will order settlement services through
their existing loan origination system. Instead of the order being
distributed to seven or eight different vendors, it will go
directly to the settlement services companys network of providers,
which will then fulfill its requirements. This streamlined process
helps lenders facilitate an e-mortgage by improving data quality,
enabling technology adoption, addressing evolving technical
standards and eliminating legal concerns. For example, by utilizing
lender-specific controls made available by most vendor management
enterprises, the provider can follow a lender's custom workflow so
that funds are not released at closing until all appropriate
procedures have occurred, reducing rework andworsepotential
repurchase.
Choosing your settlement services
provider
When it comes to settlement services, not just any provider will
do. For a settlement services provider to operate a successful
vendor management operation, it must be staffed with seasoned
professionals that have extensive experience in the settlement
services industry. The right settlement services provider will
offer services that can be customized based on a lenders criteria
for vendor selection. For example, if a centralized processing
lender out of New York needs to close a loan in Kansas, a top-grade
settlement services provider will select and apply the best local
vendor in a matter of minutes.
Settlement services providers also help lenders avoid legal
issues associated with e-mortgages, since lenders outsource the
fulfillment of e-mortgages to them. Because the vendors involved
are pre-screened and trained, lenders are ensured that the
appropriate disclosures, disclaimers, and Electronic Signatures in
Global and National Commerce Act and Electronic Uniform
Transactions Act compliance measures will be followed. A settlement
services provider also supports eNotarization, allowing the notary
seal to be applied electronically. Once the loan documents are
finalized, the settlement services provider will track the
authoritative copy of the electronic promissory note and submission
to the MERS note registry.
Closing in on results
You may ask: "Why e-mortgages?" We're all familiar with the current
market picture: Mortgage delinquency has reached record levels.
Foreclosure rates continue to climb, resulting in excess housing
inventory and lower home prices. Lenders continue to face rapidly
declining loan volumes and decreasing margins, with per loan
profits dropping to a low of 15 to 30 basis points, according to
some industry analysts. In times like this, finding ways to drive
efficiencies is more important than ever.
While changing the market situation will take time, there are
things lenders can do today to make an impact in the future.
Technology adoption can play a large role, which is where
e-mortgage comes in. Weve explored several benefits of e-mortgage
in this article, but perhaps the greatest benefit of all is the
long-term impact that the adoption of e-mortgages can have on our
industry. An e-mortgage represents a viable execution strategy for
lenders that need to manage operations more effectively. More than
that, e-mortgage represents a vehicle by which investor skepticism
surrounding mortgage pools can be alleviated. Helping lenders
originate more efficiently will be an essential ingredient in our
industry's recovery.
Tom Madison is senior vice president of mortgage services
for Equifax. He may be reached
by e-mail at
[email protected].
