Regulatory change brought about by the CFPB has forced those involved in the real estate transaction to evolve, with some taking on new responsibilities and others relinquishing what were historically theirs. Participants have had to adjust to new processes and procedures in the face of changing compliance rules, all while ensuring that consumers have access to the information they need to complete the transaction.
As traditional roles shifted, one of the changes that triggered a fair degree of angst was the transition of responsibility for the Closing Disclosure [CD] from settlement agents to lenders. With this change, lenders became accountable for ensuring that the CD is accurate within permitted tolerances. However, when lenders began changing familiar processes to meet these new requirements, real estate agents lost visibility to information that was historically available to them via settlement agents. This information is important to real estate agents because they are accustomed to walking their clients through every step of the complex mortgage process.
But today, lenders have the final responsibility for ensuring that the correct information is on CDs with the possibility of financial penalties should there be any mistakes. Understandably, they are very risk averse, given the potential for expensive fines and penalties – even when they and their partners have taken appropriate steps and precautions. As a result, lenders may not want to share CD information with anyone other than the homebuyer. For example, if a homebuyer’s real estate agent requests permission from his or her client for the lender to forward settlement information to the agent, the agent can use that information to provide helpful explanations to the customer. But since it is possible that regulatory or legal repercussions might arise from lenders sharing homebuyer information, some would rather err on the side of caution and send it to no one but the home buying consumer.
Yet, the sharing of CD information with the real estate agent can offer important benefits to the homebuyer – the very kind of benefits that are seemingly in the spirit of the redesigned mortgage disclosure forms to begin with. How then can the industry achieve this kind of data exchange across multiple parties while conducting an efficient mortgage process?
Driving Friction Out of the Mortgage Process
For decades, the mortgage workflow has been carried out via the exchange of documents – first by mail/courier, then by fax, and now by email. The sheer amount of documentation required to obtain a mortgage is due to both the highly regulated nature of the transaction and the fact that so many parties are involved in the process. A mortgage is not just a transaction between the borrower and lender. It involves many other participants, including title insurers, appraisers, settlement agents, attorneys, inspectors and more. With so many involved and so much documentation to pass back and forth, there is the potential for significant friction in the mortgage process.
But as technology has advanced and information sharing has become more secure and auditable, lenders have invested resources to build system integrations with service providers to help reduce some of this friction. Today it is much easier for lenders to procure the many services needed and to send the documentation required in the course of originating a mortgage.
Now, to achieve even greater market efficiency, these system integrations must move beyond service providers and extend to the full set of participants in the mortgage and home buying process, namely the consumer (as buyer or seller), the real estate agent, the settlement agent and the lender. This is where the next wave of system-driven efficiency should occur. The most efficient mortgage market is one in which integrations have been put in place to connect loan origination systems to settlement service systems to realtor listing and transaction management systems and ultimately to consumer portals.
Consumer Transparency and Satisfaction
At the heart of this approach is transparency and greater satisfaction for the consumer. Imagine a scenario where consumers can log in to one portal, see the progress of their real estate transaction, be given prompts when their action is required (e.g. “Your appraisal is ready – Click here to forward to your real estate agent”), review documents as they are available and much more. Not only would this help satisfy the consumer’s need for both information and guidance, but also efficient interactions between all parties would be made easier, more cost-effective and secure.
The technology to create such portals is not new. Powerful but easy-to-use consumer portals already exist today. What is needed is a connection between all participants in the real estate and mortgage process, and this is where the industry should progress to next.
What could be better for the consumer or anyone involved in the real estate transaction? The greater the efficiency and simplicity in communications between all parties – with the right information served up at just the right time – the less friction there is in the process, and the greater the probability that consumers will be well-satisfied with the mortgage process.
Knitting Together the Ecosystem
The next logical step required to knit together the mortgage transaction is to bring in real estate transaction management platforms – not just with the lender’s loan origination systems, but with the entire eco-system of service providers and the consumer. With advancements in technology, the maturity of data standards such as MISMO and RETS, and the continuing evolution of real estate platforms, as well as the growing comfort of consumers with apps in general, a more fluid transaction is possible. Enhanced data standards and integration can help make the real estate transaction more transparent and efficient for consumers, creating a home buying experience which will likely lead to referrals and repeat business in the future for both lenders and real estate agents.
And that’s really where the rubber meets the road. Both lenders and real estate agents are interested in having their deals close with the greatest amount of efficiency and transparency to serve the consumer well. Personal referrals are the most powerful sources of new leads, and delivering an excellent consumer experience is one of the best ways to encourage them.
Enhancing the Role of the Real Estate Agent
Real estate agents are the oil that helps the overall purchase transaction machine function. Given that, as technology does a better and better job of enabling market efficiency, does that mean the role of the real estate agent as facilitator will diminish? Not by any stretch of the imagination. Real estate agents will continue to play a vital role as the trusted professional that provides strategic guidance for consumers who find the purchase or sale of their home complex, if not downright frightening. Real estate agents not only bring valuable expertise on a wide variety of topics, they become supportive partners who are readily available to serve the consumer’s best interests. For many new homeowners, their real estate agent becomes a trusted friend long after the transaction has closed.
Of course, this has always been the case on some level. But when greater connectivity across the real estate ecosystem is achieved, real estate agents will be able to reframe their role by spending even more time counseling their clients and deepening those relationships, rather than focusing so much time on ensuring that paperwork is where it needs to be and that all involved parties are working on their part of the process to get the loan closed.
Clear Benefits to Lenders
For risk averse lenders, connectivity and transparency across the real estate transaction ecosystem could help to resolve issues that might otherwise be concerns. In the example mentioned earlier – a real estate agent may ask for settlement information to populate their own system of record – but even if a homebuyer gives their lender permission to share that information, lenders may be reluctant to do so. However, in a connected environment, not only can consumers be prompted to provide their real estate agent with access to specific settlement information, they must proactively indicate their approval, which would help ensure that the information is only provided to the selected real estate professional.
System-based capabilities like this could help relieve lenders from the potential risk associated with sharing settlement information, but perhaps more importantly, it gives consumers the ability to decide when to share information about their transaction with others. While this may require some simple consumer guidance within the system such as prompts or other clear instructions, it does empower the consumer to participate more fully in the real estate transaction process.
How Lenders Can Help
While the consumer is ultimately in the driver’s seat of the real estate transaction, the lender certainly has an influential role to play and can help drive the industry towards a fully connected transaction ecosystem. In many cases, lenders already have the technology infrastructure in place that connects them with external partners such as service providers (appraisers, etc.) that are a necessary part of the real estate transaction. And of course, they are an important line of communication with real estate agents and can encourage their involvement and participation in the evolution of the industry.
As the real estate transaction continues to move toward greater transparency and simplicity, even as industry participants continue to focus on transaction security, procedural continuity, and regulatory compliance, the possibility of seamless, automated communications offers great promise. This knitting together will become quite important as early as next year when the GSE mandate for lenders to deliver not just the buyer’s CD but also the seller’s version goes into effect. An inter-connected real estate transaction ecosystem would not only make greatly increased efficiency possible, it would also bring the consumer to the table as a connected partner in a way that enhances transparency and should lead to greater customer satisfaction as well.