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Oct. 1 marked the 15th anniversary of the enactment of the Electronic Signatures Act, which provided electronic contracts the same legal weight as those signed on paper. The law was created to make remote financial transactions—like getting a mortgage—easier, faster and cheaper, not just for consumers but lenders and vendors, too.
Yet while most Americans feel at ease using digital signatures—not to mention banking and spending money online—the vast majority are still signing mortgage loan documents on paper, and the process at many companies in our business hasn’t changed much since before the e-signatures act was signed by President Clinton.
Sadly, we are no closer today to a truly electronic, paperless mortgage process than we were 15 years ago. We’re probably a lot more likely to buy a driverless car before we can get a completely paperless mortgage.
I think my own recent experience as a mortgage customer isn’t out of the ordinary and is a good example of where we are today in our industry, which often hails itself as being ahead of the curve when it comes to technology and automation.
I'm currently going through the refinance process. I was prepared to expect a lot of paperwork, so it really hasn’t come as a shock to me, but, man, there sure are a lot of things to sign! There is a ton of stuff that requires my signature, mostly for the receipt of one disclosure or another.
So far, virtually none of the process has been done electronically. We haven't even gotten to the closing yet, where I know about an hour’s worth of signing a stack of papers a foot high awaits.
I thought I was being progressive by trying to send documents electronically to my lender through Dropbox, but they refused to accept them. Although all of my documents were in order, my lender simply wasn’t able to open any attachments or links I sent. I was then required to send them hard copies via a courier service, but two weeks later the lender couldn’t locate my documents and therefore never updated my file. It turns out they were at the lender’s scanning department, eventually destined for a paper folder and one of their thousands of filing cabinets.
By way of comparison, I've also been going through the process of getting several new business trademarks, and my experience there has been totally different. The government’s Web site wasn’t much to look at, but I can say that I was able to do everything electronically, including signing the “papers.”
Clearly, the electronic age really hasn't kicked in yet in the mortgage industry. We lag behind many other industries. So what’s holding us back, and what can we do about it?
Embrace technology or get left behind
People get used to the way they’ve always done things and continue to operate the way they always have, even when it no longer makes sense, either financially or logically, or even when tools to improve the process are widely available.
When we founded our company, we saw the need for automating the due diligence and monitoring process for third-party originators and appraisers. We’ve standardized what used to be a fragmented, time-consuming and labor-intensive chore and created a consistent way for third-party originators (TPOs) and appraisers to be vetted and monitored by the lenders they do business with. The system is completely electronically-enabled and eliminates the need for paper documents.
Nevertheless, despite the fact that everything we do is electronic and paperless and the documents are stored in the cloud for easy retrieval, many of our clients still insist on printing everything out and then filing them away. Think of the amount of money they would save by not printing all of those pages, savings that can be passed along to grateful borrowers, the ones who eventually pay for all this waste.
Lenders who rely on third parties, like mortgage brokers and appraisers, for example, already take on inherent risk. Each relationship must be managed for quality, performance, profitability and proper credentials. But then they take on additional risk and expense, needlessly.
At many companies, signing up and then managing their TPOs and appraiser networks is still done manually—on paper, taking hours to manage just one relationship, often by their most highly paid employees—their account executives. Plus, these tasks must be done annually for all of the third parties they work with. For big companies, that could mean reviewing thousands of client relationships. Then there’s the lost opportunity cost to consider: your account executives could be doing something a lot more productive—like finding and creating new revenue opportunities—rather than gathering broker applications.
Technology and automation have transformed this antiquated process into an effective business optimization opportunity. It enables organizations to achieve higher value business outcomes, such as assessing performance, eliminating nonproductive relationships and identifying opportunities to grow productive ones.
A paperless process is also more secure and private. The opportunity for identity theft is huge when you rely on so much paper. Dumpsters are still a goldmine for thieves trailing companies who fail to adequately destroy paper documents. But that risk is eliminated by working with companies that have electronically enabled their services.
Fortunately, the technology to make this process more efficient, cost-effective and safer already exists and has for some time, and many lenders are in fact using it. Not only can this entire process be automated, enabling the processing of thousands of third-party applications a month quickly and cheaply, but the documents can be stored electronically too. Doing so puts an end to redundant applications while enabling easy retrieval of documents, when required.
Yet many companies aren’t taking advantage of these systems, and even when they do, they don’t make the most of them. There is still plenty of road that needs paving.
Let me say, though, that things aren’t entirely bleak. Many in the mortgage business are in fact making the necessary changes in technology and efficiencies that will continue to transform our industry. While some progress has been made, the pace of change has been slower than it needs to be. Many companies have been reluctant to make the reforms they need to make. They prefer the old way of doing things, often only because that’s what they’re used to and comfortable with.
Indeed, if you're not embracing technology—still doing things manually and keeping paper documents in filing cabinets—you are going to be left behind or put out of business.
To stay competitive, companies must transition to a paperless environment. When a mortgage can be made, start to finish, without producing any paper, not only will the customer’s experience be greatly improved, but all of the players in the process will be able to realize greater efficiencies and cost-savings, while doing so in a compliant manner.
Greg Schroeder is the founder and president of Comergence Compliance, a provider of third-party risk-management platforms for the mortgage industry, specializing in mortgage originator and appraiser due diligence and profile surveillance.
This article originally appeared in the October 2015 print edition of National Mortgage Professional Magazine.