In the heydays that were only just a few years back it seems, the systems in every lender’s office were straining at their breaking points to cope with the volume. During this time, there was much fanfare and hype about the so-called “e-mortgage.” It was to be the unifying process that would streamline our process, eliminate paper shuffling, lower costs and cure the common cold. Committees were meeting, commissions were debating about standards, and technology was being developed to facilitate e-signatures and imaging. Things looked so hopeful, yet the e-mortgage did not evolve beyond a prototype.
There was no time then to implement any major improvements; no time to adopt the new technologies that promised the untold rewards of efficiency and cost reduction. Instead, we settled for familiar technology … some band-aids, workarounds and minor changes in our manual process. We used lots of old, familiar tools, like spreadsheets to calculate best execution, to manage hedges and locks. What I call, “good enough” technology.
We put off things and patched up existing systems. We prayed for a time when volume would back off a little so we would have time to consider major improvements to our processes. Well, that time has come … or has it? Volume is down and the pressure is off, but where is the capital to make the very improvements we lusted after just a short time ago? Today, the theme is capital conservation. Budgets are slashed, profits down and layoffs are de rigueur as we are in survival mode.
So what are we doing about technology, these days? It seems that it’s good enough. Systems are no longer stressed past their limits. There’s no pressure to improve technology and no money to do it. Interest in new innovations and the e-mortgage is down as is attendee and exhibitor participation at mortgage technology events and trade shows in general.
Are we stuck in neutral … not moving forward or backward? At a time when we could be preparing for the future, we are faced with the prospect that there might not be one, at least as we know it, hence few want to invest in new technology.
Every year since 2000, when the first e-mortgage was consummated, we asymptotically approach the e-mortgage finish line, half the distance at a time, but are we ever really going to get there? Six years after that momentous event, the following quotes appeared in a July 24, 2006 CNNmoney.com article, entitled “E-mortgages on the way.”
“There's a quiet revolution going on in the mortgage industry: Homebuyers soon will be securing mortgages and closing on sales almost as easily and conveniently as they purchase an airline ticket online.
Borrowers will go through the entire process, from application to registering with the county courthouse, without the mounds of messy paperwork currently required.”
It had been more than five years since the first e-mortgage event and we were still shuffling tons of paper around with each loan.
Fast forward to March of 2009. If you originated a loan lately, you know that is still takes an average of two to four weeks to collect all the paper and get a clear to close. Oh yes, we are making use of electronic documents. The appraisal comes as a PDF, but the appraised value, the appraiser’s name and license information are manually transferred to another form or system. The credit reports, title commitment, are all still largely just paper documents that are in electronic form. There is no ability to actually move the information from system to system electronically.
We’ve had automated underwriting in place for decades, but no one trusts the findings since the mortgage meltdown. “A minimum credit score of 620 for this loan program is required regardless of AUS findings”, is a phrase routinely posted on Web sites and lender guidelines. Lenders routinely impose additional conditions on loans which require manual handling.
We live in a strange mortgage universe today—a stagflation of sorts. In stagflation, there is high inflation driven by high demand, and economic stagnation caused by slow or no growth at the same time. We have something like that today, don’t we? The demand for mortgage loans is being fueled by low interest rates and high home inventories. At the same time, it is restrained by the stagnation, nay the tightening of credit requirements, falling warehouse capacity and general reluctance on the part of lenders to lend. It’s Alice in Wonderland’s mad tea party all over again!
It’s not much better downstream. Title company technology still does not interface with other systems on a broad basis nor do warehouse lenders or end investors. How many of the approximately 3,100 counties in the U.S. can actually electronically record a note and deed of trust? We are still paying for overnight delivery fees.
The use of paper documents with original signatures is still commonplace. While e-mail has improved the velocity of business communications, it is not a secure medium for the transmission of documents with consumer information. The ubiquitous fax machine, a technology that was invented in 1843, is still an essential element of the mortgage process, cranking out thousands of reams of paper as it moves information around the country.
Last year, the Property Records Industry Association (PRIA) and MISMO (Mortgage Industry Standards Maintenance Organization) announced the first draft e-recording document standards; a draft, mind you. In the joint press release which appeared in the May 2008 issue of Mortgage Banking Magazine it stated, “This is the first joint publication of the two organizations since forming an alliance in November 2005,” according to Harry Gardner, then MBA's vice president of industry technology and head of MISMO. One wonders what they were doing for the last three years.
Recently, Mr. Gardner moved on to other pursuits and the Mortgage Bankers Association announced that MERS (the Mortgage Electronic Registration Systems), the highly successful electronic registry service will take over MISMO. Some, including Kevin Smith, president and CEO of Mortgage Builder Software, view this development with optimism. In his February 12 “Industry Outlook” column on Mortgage Technology, he said, “Hopefully, having MISMO be part of MERS will hasten the process of adoption for e-mortgages.” Further, he stated, “The potential of e-mortgages has yet to be realized except as a technical curiosity. Now, it holds the promise that it might be the thing that can rescue our industry.” I certainly hope he is right.
According to Smith, e-mortgages are not paper, they are simply organized collections of data. So when one item is changed, that change is instantly reflected in all associated documents in the collection. This structure can make compliance simpler and third-party fraud, hopefully, immune to human tampering. Borrowers and investors alike can “see” the loan throughout the process as it progresses and into a secure electronic vault. Closings are inherently more transparent and secure. It is this inherent assurance to stakeholders that may bring securities investors back to the fold, resulting in liquidity throughout the industry once more.
It has been almost nine years since the first e-mortgage closed. In 1961, without the aid of cell phones, personal computers and the Internet, we started the space program and landed a man on the moon. That took less than eight years. I’m still waiting for the e-mortgage to show up. I hope I don’t miss the e-mail!
Ron Litt is operations director at Dallas-based mortgage banker, Southwest Funding LP. He may be reached by phone at (214) 221-5215, ext. 168.