*You Need More Than Just An eSignature*
**By Sharon Matthews**
***The recent announcement that the IRS, and eventually the FHS, will begin accepting electronic signatures on the 4506T is generating a lot of interest in the mortgage industry. Even technology-savvy lenders must currently manage the 4506T on paper, or outsource to a company that does. This results in a disjointed process and creates the opportunity for errors or slowdowns. So, will the widespread adoption of eSignatures truly remove the final barrier to a completely electronic set of mortgage documents? Most lenders are finding that there’s more to integrating eSignatures than just installing a new tool.
****eSignature technology has undeniable benefits, such as increased productivity and cost savings, but by itself, may not be the panacea it is made out to be. In many ways, eSignatures have become a commodity, with companies offering eSignature technology sprouting up everywhere. However, to realize the full potential, lenders must leverage the technology within a broader solution set. Lenders using the IRS announcement to introduce electronic documents into their processes should evaluate eSignature technology in context of the entire workflow. For example, where do the signed documents go, how are they stored, and what impact does a mixed media file have on underwriting? What happens when documents are electronically signed, but require the return of additional conditions or stipulations? And what is the impact on compliance if a document is sent electronically but isn’t signed?
****The answers are easily found in the best practices of lenders leading with a best-in-class consumer experience. They are taking an approach where the workflow is designed with an electronic process as the normal way of doing business, and where paper is the casualty of an inefficient and costly alternative.
****In this highly competitive market, lenders need a solution that provides multiple options within a single, integrated workflow. Electronic documents may be the preferred method for exchanging information with the consumer, but it cannot be the only option. RESPA regulations require lenders to issue a GFE within three business days of an application. If for some reason the consumer does not pick up the electronic GFE in the allotted timeframe, or indicates that he does not want to receive the documents electronically, the lender must handle this exception. This could be time consuming and difficult to manage, not to mention error-prone, especially with any kind of volume in the loan pipeline. Given the cost of failing to comply with regulations, an eSignature solution that handles exceptions automatically quickly pays for itself. Having an electronic signature package with an integrated print and mail feature is the best solution that addresses total cost and compliance objectives.
****Imagine this ideal scenario after you receive an application for a mortgage: Your loan officers process the necessary information and prepare the disclosures. They then electronically send the disclosure documents to the consumer to sign. An email is automatically sent to the consumer announcing the availability of the documents and requesting their action. If the consumer doesn’t respond in time to meet the three-day requirement, the loan officer is notified and the documents are automatically printed and mailed to the address on record. No intervention is required by your loan officers and you remain in compliance automatically.
****Sounds too good to be true? This is exactly the type of solution, one that gracefully handles exceptions within the workflow, that lenders need in today’s market. If there isn’t an option to automatically “fall out” to paper processing, eSignatures may actually reduce productivity, because lenders will have a second workflow to manually process paper disclosures. This is a reality of electronic signatures in the mortgage industry that few technology vendors want to discuss. But it is vitally important in a mortgage scenario and should be factored into any ROI calculation.
****The interaction required to complete the disclosure process is just the beginning. Frequently, once those documents are signed, additional conditions and stipulations must be met before the loan is approved. This requires lenders to collect documents from the consumer. For example, income verification may require a pay stub or a copy of a W2. The challenge for lenders is to track these requests, get the requested materials, and then integrate them into the loan file. Technology can, and should, be used to manage this process as well.
****An effective solution allows lenders to interact with consumers in different ways. Electronic documents, electronic signatures, paper copies, and even fax may be employed to collect the information needed in the loan file. For convenience, a document solution should provide multiple channels to distribute documents and data. Even though mobile and electronic technology is gaining traction, many processing groups still rely on fax machines. Good solutions can produce a fax cover page with an embedded barcode that identifies the documents or conditions being met. When the fax is received from the consumer, it is electronically processed and the documents are placed in an imaging or document management system without human intervention. More advanced systems allow a consumer to upload a document directly, or even take a picture of the document and return it using their mobile phone.
****A Mobile Strategy
****Mobile phones have clearly become a standard aspect of daily life for the American consumer. According to statistics compiled by the Federal Reserve System in March 2012, 87 percent of the U.S. population has a mobile phone. Many are smart phones connected to the Internet. Mobile devices continue to grow in popularity as a method for managing financial information. In 2011, 20 percent of the total U.S. mobile audience indicated that they conducted some type of financial-related activity from their mobile device. Mobile banking is poised to expand further over the next year, with financial information usage increasing to one in three mobile phone users by 2013. Clearly, today’s consumers expect information, even sensitive or protected financial information, on their mobile devices.
****Lenders looking to increase their competitive position and improve customer service are taking advantage of mobile trends. A number of institutions already allow consumers to obtain financial account information and conduct transactions, including paying bills, transferring money, and ordering services. Document delivery and signature services can and should be incorporated into this experience. Just as consumers can see their checking account balance on their phone or tablet, they should also be able to apply for a mortgage, receive their disclosures, sign the documents, and return any requested information from their mobile device.
****Supporting mobile users has many benefits for a lending institution. In addition to improvements in customer loyalty, reaching consumers quickly shortens processing times and improves retention in the application process. A 2011 study by eLynx showed that lenders who used electronic delivery and signature services shortened the loan cycle by 4-5 days. The study documented solid improvements in productivity. The data also suggests that lenders with shorter application-to-close times may have a competitive advantage when a borrower is shopping among several lenders. Borrowers who received information quickly were more likely to commit to the transaction, resulting in a 3-4% improvement in the number of applications that go to closing. The ability to connect with your borrowers on a mobile device when they are away from their home or office can mean the difference between an application that goes nowhere and a closed loan.
****A Complete Record
****Enabling the fast and efficient exchange of information is critical to improving the customer experience and the competitive environment. But ultimately, all this electronic data must be managed and tracked to increase efficiency. General eSignature services may not be prepared to handle the transparency and audit needs that a mortgage transaction requires.
****For complete traceability, all documents both sent to, and returned from, a consumer should be captured in a single loan file. As documents are signed and submitted, the loan officer can be notified and the returned documents automatically stored in an imaging system or in an electronic folder. This provides a complete record of consumer interaction. Additionally, loan officers can monitor this electronic folder to proactively manage the application process. If a disclosure package is not returned as expected, the loan officer can reach out and contact the consumer to assist with the decision making process. Ultimately, this impacts the rate of approved applications that go to a closing.
****Finally, using an electronic delivery service that is integrated with an imaging system or electronic folder provides a single, authoritative source for loan documents and improves productivity for mortgage processors, closers, and interested third parties. No more chasing down the latest copy of a document or pulling a document only to find out that it’s been revised three times. There is one place that contains all the documents for the loan. This has immediate benefits if a lender or mortgage broker is audited.
****Beginning in 2012, the Consumer Financial Protection Board is instituting a mortgage examination procedure. Both lenders and non-bank originators are subject to evaluations in several areas, including loan disclosures and terms, closing, and fair lending practices. Examiners show up on site requesting access or copies of documents on a number of loans. If those documents can be provided electronically on demand, the audit process is streamlined. The same benefits also hold true for the complex audit requirements enforced by many state regulators.
****The Competitive Edge
****Audit, regulatory, risk, competitive, and consumer satisfaction needs are important issues facing mortgage lenders today. eSignature is a key technology, but it is only a point solution. Lenders should evaluate eSignature vendors and tools within the context of the entire workflow. Merely signing a 4506T electronically is not going to achieve the results that lenders need in today’s environment. The best solutions are those that gracefully handle exceptions, support the return of additional documentation, are connected to an electronic loan folder, and provide multiple methods for interaction including electronic, fax, and hard copies. These types of solutions exist, and are being deployed by technology savvy lenders who are enjoying a competitive edge.
****ABOUT THE AUTHOR: As President and CEO, Sharon Matthews oversees the overall operations of the company and is responsible for the growth of eLynx’s market leadership position providing data-driven document distribution, collaboration, and connectivity services for the financial services, mortgage banking, and real estate industries. Matthews came to eLynx with more than 25 years of senior executive experience running profitable large technology and software companies.