The truly digital mortgage has been the industry’s “white whale” — a goal that has been talked about incessantly and obsessed over but has been largely elusive and just out of reach. The allure of a truly digital mortgage has always been clear: improved consumer experience, significant cost savings, greater efficiency and faster, frictionless loan closings, among other things.
To be sure, there has already been significant progress in creating a truly digital mortgage, defined as a widely available, paperless process that can be completed entirely from the comfort of home. Many mortgage lenders already offer their originators and consumers the ability to complete a loan application on any device, sign loan disclosures and documents digitally, and automatically verify employment, income, assets and credit history. Additionally, in states that allow it, some lenders also have digitized the back end of the process via e-closings.
These technological advances helped to reduce the time from application to closing prior to the COVID-19 outbreak, which unfortunately has increased turn times across the industry. There are still elements of the process ― such as appraisals, wet-signature requirements and notarizations, and certain state- and county-level requirements ― that typically require consumers to meet in person and deal with physical documents, negating the fully electronic aspect of the true digital mortgage.
Responding to risk
Recently, due to the COVID-19 pandemic — and the resulting advent of stay-at-home orders and social distancing ― the components of the mortgage lending process that require physical proximity to others have become even more challenging, presenting a real risk to the industry. By necessity, government authorities quickly introduced legislation to ease certain requirements, allowing mortgage lenders and consumers to get a closer look at what a truly digital mortgage would look like.
Among the legislative and regulatory changes that have recently taken effect or are actively under consideration:
Congress recently introduced a bipartisan bill that would allow notaries in states without remote online notarization (RON) laws to perform RON transactions. As of July 2020, the bill remained in an introductory phase and was waiting to be part of the next CARES Act.
Many states have issued emergency orders to allow RON. A recently introduced bill, the Securing and Enabling Commerce Using Remote and Electronic Notarization Act, would allow RON nationwide, potentially enabling much greater adoption of fully digital e-closings.
The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have allowed for a greater number of appraisals to be done virtually (referred to as desktop appraisals), enabled by mobile technology and available online data.
The GSEs also have allowed for alternative acceptable methods to verify employment, including email verification, rather than requiring written letters or direct phone contact with employers.
State regulators have relaxed standards that required mortgage professionals to physically work in a licensed branch office, allowing for continuity in mortgage processing and underwriting in a work-from-home environment.
Relaxed regulations, as well as improved appraisal and notarization technologies, are crucial ingredients in accelerating the transition to a truly digital mortgage. But they are not enough.
Banks, nonbank mortgage originators and loan servicers … should look to push further by adopting and fully utilizing other compatible technologies across different platforms.
Adapting to circumstances
Banks, nonbank mortgage originators and loan servicers — a wide array of related but distinct financial companies ― should look to push further by adopting and fully utilizing other compatible technologies across different platforms. This will allow for a more seamless and consumer-friendly mortgage lending process. Acceptance of digital verification and validation, greater utilization of automation and digital-collaboration tools, and implementing blockchain or safe and secure data management are just a few examples.
The latest government effort to help beleaguered homeowners ― temporary forbearance of mortgage payments ― shows why a fully digital mortgage would make life easier for everyone. As of this past July, forbearance programs contain no method for proving hardship, leaving them wide open for people who may not qualify. A digital mortgage would allow for the free and secure exchange of information between parties, providing a path for easy verification.
Typically, when the economy is thriving, as it was during the recovery from the 2008 financial crisis and prior to the COVID-19 pandemic, lenders tend to invest in technologies that streamline processes and help drive additional revenue opportunities. During economic downturns, lenders tend to spend more on technology that reduces costs while driving operational efficiencies and productivity.
Interestingly, the homebuying and selling component of the industry has adapted quickly in light of the COVID-19 outbreak, and could serve as a good model for lenders that have been hesitant to adopt a truly digital mortgage process. Real estate agents and homebuilders, faced with the same issues of stay-at-home orders and social distancing, have been forced to be creative to keep would-be buyers interested in purchasing homes.
They are leveraging enhanced, virtual 360-degree walking tours that let prospective homebuyers see a house from the outside and take a three-dimensional tour of the inside of the home. They also are leveraging video conferencing via FaceTime, Zoom and other collaboration platforms to stay connected to their clients. By most accounts, the process is easy and enjoyable.
The mortgage industry is different, of course. Mortgage lending is not about the beautiful visuals of showing off high ceilings, brand-new appliances or elegant landscapes. It’s about consumers quickly and seamlessly obtaining the necessary financing to realize their homeownership goals. Lenders can take note of the quick adaptation that is happening in real estate buying and selling as an example of the growing importance of collaborating via digital channels and quickly adopting new technologies.
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The pandemic is still ongoing and the economic repercussions are yet to be fully determined. It will take some time before consumers feel confident again and the market for homebuying returns to some level of normalcy. When it does, based on the regulatory and technological changes the COVID-19 pandemic has necessitated and accelerated, the mortgage industry will hopefully have leapt forward in its quest to fulfill the promise of a truly digital mortgage. ●