Pixelation Nation: E-Closing in the Mortgage Industry

By: Jim Rosen, "Pixelation Nation: E-Closing in the Mortgage Industry," for Progress in Lending

Digital photography was invented 43 years ago. Today, we have grown so accustomed to taking photos with digital cameras – including our cell phones – that we no longer think twice about this technology. Sure, most of us grew up taking rolls of film to the store to be developed, but would you really trade the immediacy we have today for film? For most of us, the answer is “no way.”

The all-digital mortgage is similar to digital photography. It has gone from being a novel concept – something for lenders to strive for – to being something we hear about all the time. The need for all-digital-everything in mortgages has been driven by a number of considerations, including consumer demand for more timely and efficient interactions, complex compliance requirements, and a need to expedite lending activities. Non-bank lenders add to this mix with non-traditional lending practices and different risk profiles, creating a hyper-competitive lending environment.

In light of all of these factors, tack-on solutions or limited technology that only supports digital disclosures is just no longer going to cut it. As we adapt to the needs of today’s borrowers, we believe that embracing the all-digital mortgage experience is the best option for lenders to ensure that they have a lending platform that will support their future activities. Just as camera film has become all but obsolete, so too will be paper-based mortgage processes. Here’s how you can ensure you are at the forefront of this part of our digital revolution.

As mentioned, digital disclosures have long been an accepted first step in the digital revolution. Electronic signatures on early and upfront disclosures carried low risk and were simply implemented, and the options and flavors of eSign are numerous. However, lenders are realizing – and consumers are demanding – that you can’t just offer digital disclosures and then revert to paper for closing to realize the benefits of the digital mortgage.

There are two reasons for this. First, because of increased regulations that require compliance checks and procedural validations, lenders today automatically face higher costs per loan. And while increased costs can be mitigated with procedure redesign and staff training, lenders can only retrain so much without having to rely on technology to go further. Second, many of today’s mortgage borrowers seek automated, efficient financial solutions that they can control at the time and place of their choosing. While digitizing disclosures is a great start, today’s borrowers demand more and will go where they can find that all-digital experience.

That brings us to eClosing. The digital camera revolution took nearly fifteen years after its invention before consumers had a viable product they could buy. Similarly, the industry “standard” over the past decade for eClosing required lenders and platforms to dig deep. Their options included:

• Investing in product or platform development or in a deep technology integration that had little to no general application to the process
• Engaging in relationship-building and process validation with MERS and with Fannie Mae
• Building, buying, or partnering with a solution that generates a complex technical version of the note, and acquiring an electronic vault in which to keep the records.

In the cold calculus of cost/benefit, lenders often could not make the conversion-to-payoff based on the large investment required. Costs to implement and maintain could not justify the potential or perceived benefits in consumer efficiency and/or backend reductions in cost, time, or processes. Faced with these tack-on approaches, many lenders waited for better options to come along.

Fortunately, just as digital cameras now are ubiquitous, all-encompassing digital mortgage solutions have proliferated, as well. Digital experts in the financial services industry have begun banding together to create fully-integrated solutions for lenders of all sizes. Lenders can now adopt the complex underlying technology for eNotes without the heavy investment in research, development, or infrastructure. With the availability of these solutions, consumers will begin demanding all-digital mortgages exclusively. Paper-based mortgage processes, while already on the way out, will hopefully become completely obsolete.

That brings us to the key question for lenders: Where are you on your digital mortgage journey? The movers and shakers in the industry are already providing borrowers with an all-digital mortgage origination experience. Taking the next step today can help meet borrower demand tomorrow.