Ever since the ESIGN Commerce Act of 2000, the mortgage industry has gradually adopted electronic signatures as a way to improve the efficiency of the mortgage transaction and to speed up the pace of commerce. No more waiting for mortgage documents to be sent via courier for paper signature. No more faxing of signed documents while originals followed in the mail. With the growing acceptance of electronic delivery and signature of documents, workflow has become more efficient, more secure and easier to monitor for status.
The mortgage industry has not yet completed its journey though. We still have not transitioned to a completely electronic workflow and the vision of a totally electronic mortgage has not been realized. There have been many real external barriers to progress. Not until last year did the IRS officially accept electronically signed documents for the request of tax transcripts; and as of this writing, the FHA has STILL not issued their formal guidance on the acceptance of electronically signed documents, though that is expected very soon.
Other impediments that are more industry-related remain as well. There is the matter of needing paper printouts for many county recordings and for investors. Because state laws vary so widely, legal experts will still often advise that it is safer to have the actual mortgage note in hard copy rather than in an electronically signed format. These obstacles will eventually fall as technology continues to improve, as early adopter banks prove that electronic formats are viable, and perhaps most importantly, as the Consumer Financial Protection Bureau takes up the mantle in 2014 of championing the eMortgage and forcing the necessary changes to make that a reality.
But there is also an additional hindrance, a more subtle one that if not recognized may in the end prove to be the most persistent because it is not caused by a lack of technology or an external constraint, but by the very way the mortgage industry has incrementally adopted electronic fulfillment. This hindrance has to do with the way banks deploy electronic delivery and signature as a series of add-on projects rather than as a holistic system that ties together the entire mortgage process.
Why does this matter? Because the mortgage workflow is a complex, multi-step process that involves many participants, is very document centric, and heavily reliant on the data within those documents to ensure quality, compliance and a positive customer experience.
When the delivery of documents and the exchange of crucial data within those documents is implemented merely as a feature to be added to process support systems, it results in a fragmented approach that is constrained by the very activities it was meant to support. There is in fact a sizable missed opportunity to leverage documents and data across the mortgage lifecycle from one participant to the next in order to better monitor compliance, to mitigate fraud, to enhance quality and to deliver a truly superior customer experience.
Siloed Approach to Delivery
To understand why this has happened, you have to look at how we arrived at our current state. The adoption of electronic delivery and signature in mortgage has frequently been driven by a series of loosely related but nonetheless individual triggers.
The first of these is compliance. Banks often end up adopting electronic delivery and signature only when triggered by new regulations. Appraisal deliveries are a good example of this. When the CFPB stated that lenders would have to provide borrowers with copies of appraisals for all mortgages and not just higher-priced ones, it forced banks to prioritize the electronic delivery of appraisals as a high priority initiative in order to be able to meet the 3-day delivery time period mandated by regulation.
Overcoming legacy processes and a “the way it’s always been done” mentality is a second factor. Just because something is legal doesn’t always mean that businesses will change their processes right away. When they do change, it often comes one step at a time. It took the IRS till just last year to finally begin accepting electronically signed tax transcript request forms. This was just ONE form and though glad for the progress, it’s yet another example of how the migration to electronic delivery and signature has unfolded in a piecemeal fashion.
A third contributing factor is that there are multiple actors involved in transacting a mortgage, and each has its own systems. Lenders rely on loan origination systems. Title agents have their settlement software. Underwriters utilize title systems. Appraisers have appraisal systems and appraisal valuation models. Even income verification vendors for the IRS have their own proprietary systems. These are separate parties, with their own systems, their own buying behaviors and, therefore, they look at the adoption of electronic delivery and signature in their own way.
The last contributing factor is industry standards. This has more to do with data that documents, but it is equally important. It has taken many years for MISMO to achieve a broad level of acceptance as the de facto standard for exchanging mortgage data. Prior to MISMO, two parties that needed to pass data back and forth had to agree on a data exchange format themselves. It was much simpler to do so for very specifically defined data sets in relation to certain documents. With MISMO’s latest v3.1 standard, we now have a commonly accepted standard that will simplify and normalize data exchange for the benefit of all.
Put together, these various factors have resulted in electronic delivery and signature as a technology added onto to (or perhaps integrated into) existing systems. This assessment is not meant as a criticism. If anything, our industry deserves credit for recognizing problems and them methodically tackling them. We have been pragmatic about our approach if nothing else. It just so happens that as we look back, we can see that the end result is a mortgage process that is rather stitched together in terms of workflow and data exchange between multiple participants.
Single Delivery Platform
This uneven approach where electronic delivery is tied to individual systems means we have no opportunity to leverage delivery as an underlying process that can bring the entire mortgage lifecycle together in a more efficient and effective way. After all, the delivery of documents and the exchange of data within those documents is the one process that touches every participant in the mortgage lifecycle. That simple but fundamental insight bears repeating. From application to processing to underwriting to closing to post-close, documents and data are central to every step along the way. They are used to demonstrate compliance. They are analyzed to uncover risk. They are carefully designed to ensure an effective customer experience.
As a mortgage progresses through each phase, the value of the data that accompanies documents grows. During the application and processing phase, the lender sends the initial disclosure so the borrower can review and understand the loan she has applied for – how much she will pay in interest, her rights as a borrower, etc.
At closing, the lender sends the final approved loan package to the settlement agent. A common delivery platform is in the optimal position to compare the data from initial disclosures to final approved loan to corroborate that the loan the customer is getting matches the loan initially applied for and quoted to the borrower. This is an example of how documents and data from one loan phase can be valuable in the next loan phase.
Likewise, after close, the settlement agent can send a copy of the signed loan for delivery back to the lender. Again, with a common delivery platform for document and data exchange, the signed loan can be immediately compared to the approved loan to ensure discrepancies are within quality and regulatory tolerance. The automation and simplification of these checks – QM, RESPA, anti-predatory lending, etc. – can considerably speed up the time it takes for a lender to complete its processing. Faster processing means faster time to loan sale to investors, which directly and positively impacts bank revenue.
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It is easy to think of the electronic delivery and signature of documents as an efficiency driver. E-signature vendors are partly to blame for this. It is much simpler to tout the advantages of e-signature independent of the kind of document or workflow you are supporting. Faster transactions. Better audit trails. Simple to use. These are all benefits that vendors typically advertise.
But the actual workflow process being supported is fundamentally important to the value proposition of electronic document delivery and signature. For complex, multi-step processes like mortgage lending that involve many participants, document delivery is the common component that ties many of the activities together.
Furthermore, the data that is accessed via document delivery can help a lender demonstrate compliance, better manage risk and deliver a superior customer experience. Full access to documents and document-related data puts lenders in a position to be able to substantiate that the loan the borrower applied for is consistent with the loan that was approved, with the loan that was actually signed at the closing table, and with the loan that was ultimately sold to investors.
You can achieve this by building numerous custom connections and integrations with the various systems that support the mortgage process, or you can choose a single delivery platform that already has the connectivity in place. One way or another, this will be needed, and it is something that lenders should begin to think about.
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